Honest 


A^lONEY 


^1  Ithur  I.Fonda 


>9- 


-o 


,.-.  * 


\ 


HONEST  MONEY 


.^><m. 


HONEST   MONEY 


BY 

ARTHUR   I.    FONDA 


Xcin  Ifork 
MACMILLAN    AND    CO. 

AND    LONDON 

1895 
All  rights  reserved 


COPYKIGHT,    1895, 

bt  macmillan  and  CO. 


Nortoool)  13rf02 : 
S.  Gushing  &  Co.  — Berwick  &  Smith. 
Norwood,  Mass.,  U.S.A. 


n3 


PREFACE. 


^      In  an  article  in  the  '"  American  Journal  of 
—'        .  .         . 
Politics"  for  July,  1893,  I  gave  a  brief  state- 

«-ment  of  the  conclusions  I  had  reached  in  an 
r attempt   to   analyze    the   requirements    of    a 
-perfect  money. 

The  limits  of  a  magazine  article  prevented 
a  full  discussion  of  the  subject ;  many  points 
[were  left  untouched,  and  all  quotations  from 
the  works  of  other  writers,  in  support  of  the 
brief  arguments  given,  were  of  necessity 
omitted. 

As  the  course  of  events  since  the  article 
referred  to  was  written  has  more  fully  con- 
firmed the  conclusions  stated  therein,  a  desire 
to  give  the  subject  ampler  treatment,  which 
its  importance  seems  to  demand,  has  led  to 
the  writing;  of  this  little  work. 


386475 


VI  PREFACE. 

If  apology  is  needed  for  a  further  contribu- 
tion to  the  mass  of  literature  on  the  subject 
of  money,  with  which  the  country  has  of  late 
been  flooded,  it  must  be  found  in  the  above 
explanation  of  the  reasons  which  have  led  to 
the  production  of  the  present  volume,  coupled 
with  the  fact  that  the  questions  involved  are 
far  from  being  settled,  and  that  the  loud 
complaints,  and  the  many  financial  schemes 
and  plans,  that  have  appeared  all  over  the 
country  make  it  probable  that  further  legisla- 
tion on  the  subject  will  be  attempted  in  the 
near  future. 

It  must  be  conceded  that  there  is  some- 
thing radically  wrong  in  a  country  like  the 
United  States,  rich  in  all  of  the  necessaries 
and  most  of  the  luxuries  of  life,  where  nature 
has  been  most  bounteous,  and  where  the  not 
excessive  population  is  exceptionally  enter- 
prising and  industrious,  when  a  large  part 
of  the  people  cannot  at  times  find  employ- 
ment. When,  with  an  abundance  of  unoccu- 
pied land,  and  a  great  diversity  of  undeveloped 


PREFACE.  Vll 

resources,  capital  and  labor  —  both  anxious 
for  profitable  employment  —  cannot  find  it ; 
and  when  men  suffer  for  the  necessaries  of 
life,  not  in  one  section  only,  Ijut  universally 
and  in  large  numbers,  while  our  warehouses 
are  filled  with  manufactured  goods,  and  our 
barns  and  granaries  are  bursting  with  food 
products.  This  is  a  condition  that  is  certainly 
as  wrong  as  it  is  unnecessary. 

Such  a  condition  occurring  once  or  twice 
in  the  history  of  a  country  might  be  attrib- 
uted to  accident,  but  recurring,  as  it  does, 
periodically,  it  argues  a  fault  in  our  economic 
system.  So  wide  a  disturbance,  extended  also 
to  other  countries,  betokens  a  general  cause. 
What  that  cause  is,  it  is  not  difficult  to  per- 
ceive —  all  indications  point  to  our  monetary 
system  as  the  chief  source  of  the  trouble. 
There  are  doubtless  other  causes  that  con- 
tribute in  some  degree  to  create  variations 
in  prosperity,  but  no  other  single  cause,  or 
combination  of  causes,  seems  to  us  compe- 
tent to    account   for    the   great   fluctuations ; 


Vlll  PKEFACE. 

while  the  one  we  have  cited  alone  may  easily 
do  so. 

This  work  may  have  little  direct  effect 
in  bringing  about  an  improvement  in  our 
money  system,  but  it  is  the  hope  of  the  writer 
that  it  may  have  at  least  an  indirect  effect 
by  helping  to  spread  a  better  knowledge  of 
the  requirements  of  such  a  system  and  of  the 
principles  involved. 

Much  of  the  current  discussion  of  the 
subject  of  money  betrays  ignorance  of  those 
fundamental  principles  of  the  science  which  are 
agreed  upon  by  all  economists,  if  it  does  not 
wholly  disregard  them.  I  have  endeavoured 
in  this  work  to  avoid  such  errors  by  a  pains- 
taking analysis  of  the  subject,  and  by  a  care- 
ful comparison  of  the  opinions  of  authorities 
on  the  principles  involved.  Starting  from  this 
foundation  I  have  deduced  the  requirements 
for  an  honest  money,  shown  the  faults  of  our 
j)resent  system  in  the  light  of  these  require- 
ments, as  well  as  the  merits  and  defects  of 
various    changes    that    have    been    proposed 


PREFACE.  IX 

for  its  betterment,  and,  in  conclusion,  have 
outlined  a  system  that  seems  to  meet  the 
requirements  and  to  correct  existing  faults. 
I  desire  to  acknowledge  my  indebtedness, 
not  only  to  the  many  works  mentioned  and 
quoted  from  herein,  but  to  others,  neither  men- 
tioned nor  quoted,  which  have  been  of  material 
assistance  in  corroborating  the  opinions  I  have 
ventured  to  advance. 

A.  I.  F. 

Denver,  Colo. 


CONTENTS. 


CHAPTER   I. 

Value  and  the  Standard  ok  Value 
Definition  of  Value 
Supply  and  Demand    . 
The  Standard  of  Value 


PAGE 

1 


12 


CHAPTER  ir. 

Money 

21 

Definition  of  Money 

.       21 

The  Functions  and  Requirements  of  Money 

.       25 

Money  Value 

.       29 

Money  Demand  and  Supply        .... 

.       36 

Necessity  for  Invariable  Money  Value 

40 

CHAPTER   III. 

Existing  Monetary  Systems 

.       51 

The  Gold  Standard 

.       54 

Greshani's  Law 

.       57 

The  Silver  Standard 

.       65 

Bi-metallisiu 

.       67 

Paper  Money 

71 

XU  CONTENTS. 

CHAPTER  IV. 

PAGE 

Stability  of  Gold  and   Silver  Values         ...       81 

Gold-Standard  Prices 81 

Silver-Standard  Prices 94 

CHAPTER   V. 
Criticism  of  Some  Gold-Standard  Arguments    .         .       98 

CHAPTER   VI. 
Foreign  Commerce  ........     112 

CHAPTER   VII. 
Money  in  the  United  States  .....     125 

CHAPTER    VIII. 
Some  Proposed  Changes  in  Our  Money  System  .     1.37 

CHAPTER   IX. 

A  New  Monetary  System       ......     161 

The  Standard  of  Value 158 

The  Medium  of  Exchange 164 

CHAPTER   X. 

Merits  and  Ob.jections  Considered       ....     181 

Merits  of  Plan 181 

Objections  Answered 187 

CHAPTER   XL 
Conclusion        .........     196 

INDEX      ..........     205 


HONEST  MOJs^EY. 


CHAPTER   I. 

VALUE  AND  THE  STANDARD  OF  VALUE. 

Definition  of  Value. 

A  CLEAR  conception  of  the  meaning  of  the 
term  value  is  the  first  essential  to  a  discussion 
of  the  subject  of  money. 

Under  the  general  term  value  the  older 
economists  recognized  two  distinct  concep- 
tions, which  they  distinguished  as  value  in 
use  and  value  in  exchange. 

To  the  former  they  gave  little  attention, 
merely  stating  that  while  it  was  essential  to 
value  in  exchange,  the  latter  was  not  propor- 
tional to  nor  determined  by  the  former,  and 
citing  air  and  water  as  familiar  examples  of 


A  HONEST    MONEY. 

objects  having  great  utility,  or  use  value, 
yet  having  little  or  no  exchange  value. 

Modern  economists  —  chiefly  those  of  the 
Austrian  school — have  analyzed  the  subject 
more  thoroughly,  especially  the  relation  be- 
tween the  two  conceptions,  and  have  shown 
that  utility  or  subjective  value,  as  it  is 
generally  termed  by  them,  is  an  expression 
both  of  human  desire  and  of  the  quantity  of 
the  necessary  commodity  available  to  satisfy 
such  desire. 

The  utility  of  a  thing  grows  less  as  the 
quantity  of  it  increases,  and  it  is  the  utility 
of  the  last  increment  of  supply,  or  the  mar- 
ginal utility,  that  determines  the  subjective 
value  of  the  whole  supply,  and  it  is  the 
ratios  between  these  subjective  values  that 
determine  exchange  values.  Air  and  water, 
for  instance,  have  no  great  utility,  as  viewed 
by  the  older  economists,  except  where  the 
supply  is  limited  ;  ordinarily,  their  abundance 
makes  their  utility,  or  use  value,  small. 

It  is  not  essential  to  the  purpose   of   this 


VALUE  AND  THE  STANDARD  OF  VALUE.   6 

work  to  enter  into  an  al^stract  discussion  of 
the  theory  of  vahie  fnrtlier  tlian  is  necessary 
to  make  clear  the  fact  that  the  present  analy- 
sis in  no  way  lessens  or  invalidates  the  dis- 
tinction between  the  two  conceptions  of  value 
noted  by  the  earlier  economists,  —  a  fact 
which  has  been  overlooked  by  some  w^ho 
have  accepted  the  marginal  utility  theory. 
The  distinction  remains,  broad  and  clear. 
The  one  conception,  whether  called  "value 
in  use,"  "marginal  utility,"  or  "subjective 
value,"  pertains  wholly  to  the  relation  which 
a  single  good,  or  unit  group  of  goods,  bears 
to  a  single  individual,  or  society  unit,  in 
respect  to  human  well-being,  and  has  no 
reference  or  relation  to  any  other  individual 
or  other  good. 

The  other  conception,  called  "objective 
value,"  or  "exchange  value,"  is  dual  in  its 
nature,  involving  in  all  cases  two  or  more 
commodities.  Abstractly,  it  is  the  ratio  at 
ivhich  commodities  may  he  exchanged  for  each 
other,  or,  since  such  ratio   for  a  unit  of  one 


4  HONEST   MONEY. 

commodity  is  expressed  by  the  amount  of 
another  given  for  it,  tlie  exchange  value  of 
a  thing  is  the  quantity  of  some  other  thing 
that  will  be  evenly  exchanged  for  it,  or,  con- 
sidered in  a  general  sense,  the  amount  of 
commodities  in  general  it  will  exchange  for, 
—  its  general  purchasing  power,  in  short. 

This  latter  conception  —  exchange  value  — 
is  the  one  that  principally  concerns  us  in 
discussing  the  subject  of  money.  It  is  also 
the  conception  generally  in  mind  when  the 
simple  term  value  is  used  either  by  econo- 
mists or  by  the  general  public,  and  where- 
ever  the  term  is  used  in  this  work  without 
qualification  it  is  to  be  understood  in  that 
sense. 

The  Austrian  economist,  E.  von  Bohm- 
Bawerk,  says,  in  his  "  Positive  Theory  of 
Capital,"  p.  130  :  — 

"  Value  in  the  subjective  sense  is  the  impor- 
tance which  a  good,  or  a  complex  of  goods, 
possesses  with  regard  to  the  well-being  of  a 
subject." 


VALUE  AND  THE  STANDARD  OF  VALUE.   5 

"  Besides  the  expression  '  Vtalue  in  exchange/ 
English  economists  use,  quite  indifferently, 
the  expression  '  purchasing  power,'  and  we 
Germans  are  beginning  in  the  same  way  to 
put  in  general  use  the  term  Tausclikraftr 

The  value  of  a  thing  may  be  considered 
either  in  a  particular  sense,  with  reference  to 
some  other  specified  thing,  or  it  may  be  con- 
sidered in  a  general  sense,  with  reference  to 
all  other  things  considered  as  a  whole.  We 
may  say  the  value  of  a  bushel  of  wheat  is 
two  bushels  of  corn,  meaning  that  these  two 
commodities  exchange  for  each  other  in  that 
ratio ;  or  we  may  speak  of  the  value  of  wheat 
having  risen  or  fallen,  meaning  that  its  gen- 
eral purchasing  power,  or  the  ratio  between 
that  and  all  other  things  taken  as  a  unit  or 
a  whole,  has  increased  or  decreased. 

The  term  must  invariably  be  used  or  con- 
sidered in  a  general  sense,  unless  otherwise 
specifically  stated,  for  we  must  always  have 
some  other  thing  in  mind  besides  the  one 
whose  value  we  are  considering ;  while  if  no 


6  HONEST    MONEY. 

other  is  stated,  commodities  in  general  (taken 
as  a  whole)  is  that  thing. 

Value  being  a  ratio,  it  is  impossible  for  all 
values  to  rise  or  fall  simultaneously.  The 
sum  of  subjective  values  may  increase  or  de- 
crease, —  indeed  it  is  one  of  the  great  objects 
of  human  endeavour  to  increase  the  sum  of 
want-satisfying  power,  —  but  the  sum  of  the 
ratios  between  these  subjective  values  is  con- 
stant. As  one  term  of  any  ratio  rises  rela- 
tive to  the  other,  the  second  necessarily  falls 
as  regards  the  first. 

This  principle  is  so  universally  recognized 
that  quotations  might  be  given  from  almost 
every  work  on  political  economy  in  support 
of  it.  The  following  will  be  sufficient,  how- 
ever, as  regards  both  the  definition  of  value 
and  this  principle. 

John  Stuart  Mill  says,  in  his  "Principles  of 
Political  Economy"  :  — 

"  Value  is  a  relative  term.  The  value  of  a 
thing  means  the  quantity  of  some  other  thing, 
or  of  things    in  general,  which  it  exchanges 


VALUE  AND  THE  STANDARD  OF  VALUE.   7 

for.  The  values  of  all  things  can  never, 
therefore,  rise  or  fall  siniultaneoiisly.  There 
is  no  such  thing  as  a  general  rise  or  a  gen- 
eral fall  of  values.  Every  rise  of  value  sup- 
poses a  fall,  and  every  fall  a  rise." 

Again,  he  says  :  — 

"  Things  which  are  exchanged  for  one 
another  can  no  more  all  fall,  or  all  rise,  than 
a  dozen  runners  can  each  outstrip  all  the  rest, 
or  a  hundred  trees  all  overtop  one  another." 

Prof.  S.  N.  Patten  says,  in  "  Dynamic  Eco- 
nomics," p.  64  :  '"  Objective  values,  however, 
are  never  a  sum,  but  only  a  relation  between 
subjective  values.  There  can  never  be  high 
or  low  objective  values  of  commodities  as  a 
whole.  It  is  therefore  impossible  to  add  to 
or  subtract  from  them." 

This  latter  quotation,  as  well  as  the  preced- 
ing one  from  von  Bohm-Bawerk,  —  both  expo- 
nents of  the  marginal  utility  theory,  —  may 
help  to  correct  a  quite  prevalent  impression 
that  this  later  theory  does  not  distinguish 
between  the  two  conceptions   of  value,    and 


8  HONEST    MONEY. 

that  because  the  sum  of  subjective  vahies 
may  increase,  the  sum  of  objective  or  ex- 
change vakies  can  increase  also. 

Supj^^y  cmd  Demand. 

All  economists  recognize  the  fact  that  the 
immediate  determiner  of  value  is  the  rela- 
tion between  supply  and  demand.  These 
terms  in  their  economic  sense  mean  some- 
thing more  than  mere  desire  and  mere  quan- 
tity. SK^Jj^Iy  means  the  amount  offered  in 
exchange,  and  demand  means  not  only  a 
desire,  but  a  desire  coupled  with  the  ability 
and  willingness  to  give  other  commodities 
in  exchange  for  the  one  wanted. 

In  this  sense  the  terms  are  strictly  correla- 
tive. The  supply  of  a  commodity  (that  is, 
the  amount  offered)  may  be  considered  as 
equivalent  to  a  demand  for  some  other  com- 
modity, or  for  commodities  in  general.  We 
may  say,  then,  that  the  value  of  any  commod- 
ity is  determined  by  the  ratio  that  the  demand 
for  that  commodity  bears  to  its  supply  ;  or  by 


VALUE  AND  THE  STANDARD  OF  VALUE.   9 

the  ratio  that  the  demand  for  that  commod- 
ity bears  to  the  demand  for  some  other  com- 
modity, —  or  commodities  in  general,  when 
the  term  value  is  used  in  a  general  sense 
and  not  with  reference  to  some  other  speci- 
fied thing  only.  (The  objection  that  has 
been  made  by  some  writers  that  a  ratio  could 
not  logically  exist  between  a  desire  [demand] 
and  a  quantity  [supply]?  docs  not  a^^ply  to 
these  terms  in  their  economic  sense  ;  for,  as 
above  stated,  they  are  something  more  than 
a  mere  desire  and  a  mere  quantity,  and  the 
expression  is  translatable  into  the  other  ex- 
pression, "  ratio  between  the  demand  for  one 
commodity  and  the  demand  for  others  in 
general.") 

The  statement  of  the  later  economists 
that  exchange  value  depends  on,  and  is  de- 
termined by,  the  ratio  between  subjective 
values  in  no  way  conflicts  with  the  above 
statement  that  value  is  determined  by  the 
ratio  between  demand  and  supply,  for  the 
demand   for  a  commodity  is    determined   by 


10  HONEST    MONEY. 

its  subjective  value  and  by  that  alone,  and 
must  vary  with  it.  Hence,  as  the  quantity 
of  anything  increases  and  its  subjective 
value  lessens,  the  demand  for  it  relative  to 
the  quantity  of  other  articles  also  lessens,  and 
its  value  falls,  and  vice  versa. 

This  close  connection  between  value  and 
the  ratio  between  demand  and  supply — value 
rising  as  the  ratio  increases,  and  falling  as 
it  grows  less  —  is  true  in  all  cases.  No  other 
factor  can  affect  the  value  of  any  commod- 
ity except  by  altering  the  relation  or  ratio 
between  these  two. 

Cost  of  production  is  a  more  remote  factor 
that  enters  into  the  determination  of  value 
in  most  but  not  in  all  cases,  through  its  effect 
on  supply.  It  is  used,  like  the  term  value, 
in  two  senses,  a  subjective  and  an  objective 
sense.  In  the  former  it  means  the  pain  of 
labour  and  waiting  that  must  be  undergone 
to  produce  the  good  that  is  being  considered, 
—  the  negative  pleasure  given  to  get  the 
positive   pleasure    to    be    derived    from    that 


VALUE    AND    TIIK    STANDARD    OF    VALUE.      11 

good.  In  its  objective  sense  —  tlie  sense  in 
which  it  is  generally  used  —  cost  of  produc- 
tion means  the  goods  that  must  otherwise  be 
given  for,  bartered  or  set  against  those  desired ; 
ill  a  simple  case  of  direct  production,  it  means 
the  goods  that  miglit  liave  l)een  produced,  in 
lieu  of  those  that  have  been  produced,  with 
the  same  subjective  cost ;  in  more  complex 
cases,  it  means  the  sum  of  the  goods  sacrificed, 
in  the  shape  of  raw  materials,  rent,  wages, 
interest,  etc.,  to  get  the  one  produced. 

When  the  value  of  a  commodity  falls  to 
or  below  the  cost  of  production,  or  even  when 
it  approaches  it  so  closely  as  to  reduce  the 
margin  between  the  two  —  the  producer's 
profit  —  below  that  in  other  industries,  then, 
men  will  cease  to  produce  the  one  and  turn 
their  labour  and  capital  to  producing  the  others 
which  offer  greater  profit,  thus  lowering  the 
supply  of  the  abandoned  product  and  raising 
that  of  the  more  profitable,  thereby  affecting 
the  value  of  both. 

The  effect  of  this  operation  of  the  law  of 


12  HONEST   MONEY. 

cost  is  to  equalize  profits  and  make  the 
values  of  things  conform  to  their  cost  or  be 
proportional  thereto. 

The  law  can  only  operate  when  men  are 
free  to  turn  their  labour  from  one  industry  to 
another.  Hence  arises  the  important  ex- 
ception to  the  law,  that  the  values  of  goods 
produced  by  a  monopoly  are  not  affected  by 
their  cost  of  production.  Only  .  under  free 
competition  does  the  law  operate  in  full 
force.  As  monopoly  becomes  a  factor  cost 
ceases  to  be,  and,  when  the  monopoly  is  com- 
plete, cost  has  no  weight  whatever  in  the 
determination  of  value. 

For  analogous  reasons,  cost  enters  but  par- 
tially into  the  determination  of  the  value  of 
such  goods  as  are  dependent  more  or  less 
on  luck  or  chance  for  their  production,  as  in 
the  case  of  precious  stones,  gold,  silver,  etc. 

Tlie  Standard  of  Value. 

"VYe  may  use  the  value  of  anything  as  a 
measure  by  which  to  compare  the  values  of 


VALUE    AND    TllK    STANDARD    OF    VALUE.      13 

any  aiul  all  other  things,  but  as  all  the  fac- 
tors that  deturminu  value  are  variable,  the 
value  of  everything  is  variable.  Any  value 
may  rise  with  reference  to  .some  other  value, 
and  at  the  same  time  fall  with  reference 
to  a  third. 

By  what  standard,  or  invariable  measure 
at  all  times  and  places,  can  we  compare  the 
values  of  goods  to  determine  their  constancy 
or  variability? 

We  must  not  forget  that  there  are  two 
kinds  of  value,  and  that  it  is  a  standard  of 
exchange  value  we  are  seeking.  So  far  as  it 
may  be  possible  to  formulate  a  standard  of 
subjective  value,  it  must  consist  of  the  pain 
or  inutility  of  labour ;  for  this  kind  of  value 
pertains  only  to  a  single  good,  and  cannot 
be  referred  to  other  goods  without  confusing 
it  with  tlie  other  conception.  We  cannot 
measure  the  absolute  pleasure  a  good  will 
give  to  an  individual  except  by  the  pain  he 
will  undergo  to  get  it.  It  is  not  a  standard 
for  this  sort  of  value  we  want.     It  was  evi- 


14  HONEST    MONEY. 

dently  some  such  conception  as  the  above  — 
confusing,  however,  not  only  the  two  kinds  of 
value  but  the  two  descriptions  of  labour  —  that 
led  Adam  Smith  to  consider  labour  as  the 
ultimate  standard  of  value.  He  appears  also 
to  have  confused  the  idea  of  a  standard  of 
value  with  that  of  a  determiner  of  value. 

These  errors  were  pointed  out  in  part  by 
Ricardo  and,  in  part  also,  by  J.  S.  Mill  and 
later  writers ;  hence  the  contention  that  labour 
is  in  any  way  a  standard  of  value  has  long 
been  abandoned  by  the  ablest  economists. 
The  idea  still  lingers,  however,  and  is  fre- 
quently brought  forward  in  current  discus- 
sions, and  for  this  reason  it  seems  necessary 
to  analyze  briefly  the  relation  of  labour  to 
value. 

Labour  is  necessary  to  the  production  of  all 
commodities,  but  it  is  not  itself  a  commodity, 
nor  anything  which  for  itself  is  desired.  It 
is  a  force,  and,  like  every  force,  valuable  ac- 
cording to  the  results  it  accomplishes.  If 
unproductive,  it  has  no  value  ;  if  productive, 


VALUE  AND  THE  STANDARD  OF  VALUE.   15 

its  value  varies  according  to  the  value  of  the 
commodities  or  utilities  it  creates.  We  use 
the  terms  ''price  of  lal)<)ur"  or  ''value  of 
labour,"  implying  that  it  is  the  labour  which 
is  valued,  and  which  is  bought  and  sold;  but 
the  terms  are  merely  a  convenience.  What 
is  really  bought  and  sold  is  the  commodity 
or  utility  such  labour  has  produced  or  will 
produce.  If  it  were  the  labour  itself,  then 
the  purchaser  would  receive  not  only  the 
labour,  but  the  commodity  it  produced,  in 
exchange  for  the  wages  paid,  —  a  double 
return,  —  which,  of  course,  is  absurd. 

Three  descriptions  of  labour  may  be  dis- 
tinguished in  connection  with  the  value  of 
a  commodity,  viz. :  — 

(1)  The  labour  expended  in  its  production. 

(2)  The  labour  in  general  it  will  purchase. 

(3)  The  labour  necessary  to  produce  more 
of  it.. 

The  first  kind  of  labour  in  no  way  affects 
the  existing  supply  or  demand  of  the  commod- 
ity, and  is  neither  a  measure  of  its  value  nor  a 


16  HONEST    MONEY. 

regulator  or  determining  factor  of  such  value. 
Evidences  are  not  lacking  to  prove  that  a 
commodity  will  frequently  not  exchange  for  as 
much  labour  as  was  expended  in  producing  it. 

The  second  kind  of  labour,  the  amount  in 
general  which  a  commodity  will  purchase, 
depends  on  the  amount  of  commodities  such 
labour  will  produce,  less  the  share  which  goes 
to  capital  as  its  reward ;  for,  neglecting  rent 
or  classing  it  with  capital,  these  two,  labour 
and  capital,  are  joint  factors  in  production 
and  divide  between  them  the  total  product. 
It  is  hardly  necessary  to  observe  that  labour 
is  continually  growing  more  efficient ;  that 
improved  skill  and  methods  enable  a  much 
larger  amount  of  commodities  in  general  to 
be  produced,  with  a  certain  amount  of  labour, 
than  could  formerly  be  produced;  and  that 
labour  receives,  as  its  share  of  such  product, 
a  much  larger  amount  than  formerly. 

It  is  thus  evident,  that  a  commodit}'^  which 
would  exchange  for  the  same  amount  of 
labour  now  as  formerly,  would  exchange  for 


VALUE  AND  THE  STANDARD  OF  VALUE.   17 

a  mueli  larger  amount  of  coiiiiuoditie.s  in  gen- 
eral now  than  then,  and,  if  we  adhere  to  our 
definition  of  exchange  value,  would  be  worth 
more  than  formerly ;  while  if  labour  l)e  taken 
as  a  standard  of  value,  it  would  be  worth  the 
same.  The  use  of  this  form  of  labour  as  a 
standard  of  value  is,  it  will  l)e  seen,  incom- 
patible with  the  definition  of  value.  It  may 
serve  as  a  measure  of  the  relative  values  of 
two  commodities  at  any  particular  time  and 
place,  just  as  any  third  commodity  may ; 
but,  as  Ricardo  remarks,  "  is  subject  to  as 
many  fluctuations  as  the  connnodities  com- 
pared with  it." 

The  same  argument  applies  to  the  third 
form  of  labour  —  that  necessary  to  produce 
more  of  a  commodity.  This  form  of  labour, 
however,  is  one  of  the  factors  in  the  cost  of 
production,  and  through  its  effect  on  cost  is 
one  of  the  more  remote  factors  that  determine 
value,  as  explained  in  considering  cost  of 
production,  but  this  does  not  make  it  in  any 
sense  a  standard. 


18  HONEST    MONEY. 

We  may  conclude,  then,  that  labour  in  any 
form  is  not  a  standard  of  value  ;  that,  as  John 
Stuart  Mill  observes,  it  "  discards  the  idea 
of  exchange  value  altogether,  substituting  a 
totally  different  idea,  more  analogous  to  value 
in  use." 

Since  the  values  of  things  can  never  rise 
or  fall  simultaneously,  every  rise  supposing  a 
fall,  and  every  fall  a  rise,  it  follows  that  the 
values  of  all  taken  together  must  be  constant ; 
in  other  words,  that  general  values  cannot 
change.  Thus  it  is  that  we  find  whether  any 
one  thing  has  risen  or  fallen  in  value,  as 
between  one  period  and  another,  only  by  com- 
paring it  with  all  others,  —  in  short,  by  its 
general  exchange  or  purchasing  power.  If 
this  has  increased,  then  its  value  has  risen; 
if  it  has  decreased,  its  value  has  fallen.  It 
is  evidently  not  necessary  that  anything 
should  exchange  for  more  or  less  of  every 
other  thing  to  show  a  rise  or  fall  of  value, 
but  only  that  it  should,  on  the  average, 
exchange   for  more    or   less    of    all;   that  its 


VALUE  AND  THE  STANDARD  OF  VALUE.  19 

average  purchasing  power  .sliould  be  greater 
or  less.  If  it  has  exchanged  at  different  times 
for  the  same  amounts,  on  the  average,  of  all 
other  things,  its  value,  clearly,  has  remamed 
constant. 

This  is  the  only  standard,  or  test,  which 
Can  be  applied  to  the  exchange  value  of  any 
commodity  to  determine  its  constancy  or  vari- 
ability, and  it  is  inherent  in  the  very  defini- 
tion of  exchange  value. 

The  values  of  commodities  may  be  com- 
pared to  the  surface  of  the  ocean,  which, 
vexed  by  winds  and  tides,  is  never  at  rest, 
every  point  continually  rising  or  falling  as 
compared  with  others.  As  some  points  rise 
others  fall,  yet  there  is  a  mean  level  which 
does  not  vary,  and  by  comparison  with  which 
the  variations  of  level  of  any  particular  point 
may  be  determined.  So  with  values,  there  is 
a  mean  or  average  which  is  constant,  and  by 
referrino;  individual  values  to  that  we  can 
determine  their  fluctuations. 

These  ideas  will  become  clearer  as  we  pro- 


20  HONEST    MOISTEY. 

ceed  to  apply  them  concretely  to  the  special 
case  of  money. 

Although  there  can  be  but  one  real  standard 
of  value,  invariable  at  all  times  and  places, 
yet,  as  before  stated,  any  commodity  may 
serve  as  a  measure  of  value,  and  the  great  con- 
venience subserved,  by  all  the  people  of  any 
locality  or  country  using  the  same  commodity 
instead  of  a  number  of  different  ones  for  this 
purpose,  early  led  to  the  adoption  of  some  one 
commodity  in  each  locality  as  a  "money"  to 
measure  values  and  facilitate  exchanges. 


CHAPTER  11. 

MONEY. 

Definition  of  Money. 

Money  has  been  variously  defined  by  differ- 
ent writers.  Perhaps  the  definition  given  by 
Prof.  F.  A.  Walker,  though  lengthy,  is  the 
most  comprehensive.  He  says :  "  Money  is 
that  which  passes  freely  from  hand  to  hand 
throughout  the  community  in  final  discharge 
of  debts  and  full  payment  for  commodities, 
being  accepted  equally  without  reference  to 
the  character  or  credit  of  the  person  who 
offers  it,  and  without  the  intention  of  the  per- 
son who  receives  it  to  consume  it,  or  enjoy  it, 
or  to  apply  it  to  any  other  use  than  in  turn 
to  tender  it  to  others  in  discharge  of  debts 
or  full  payment  for  commodities." 

21 


22  HONEST    MONEY. 

This  definition  has  been  indorsed  by  several 
other  writers;  by  some,  however,  the  term 
money  is  restricted  to  coin,  paper  money 
being  called  currency.  The  distinction  is  per- 
fectly proper,  though  not  generally  concurred 
in.  People  commonly  use  the  terms  money 
and  currency  indiscriminately  for  both  coin 
and  paper  money,  since  they  perforin  identi- 
cally the  same  work  where  both  are  used 
together,  and  the  paper  is  convertible  into 
coin  at  any  time.  Where  the  paper  is  used 
alone  —  "inconvertible  paper  "  —  coin  is  really 
not  money ;  it  ceases  to  circulate  as  money ; 
it  is  hoarded  as  treasure,  or  bought  and  sold 
as  a  commodity,  but  fails  to  have  that  general 
use  in  current  transactions  in  that  country 
which  alone  entitles  any  commodity  to  be 
called  money. 

The  distinction  sought  to  be  made  between 
paper  money  and  coin  arises  largely,  it  is 
thought,  from  the  idea  that  coin  has  a  value 
in  itself  which  paper  money  has  not.  This 
idea  is  erroneous.     Value,  as  we  have  seen,  is 


MONEY.  23 

a  ratio  or  relation,  and  though  the  value  of 
anything  is  based  on  a  desire  for  it,  that  de- 
sire may  arise  either  from  the  satisfaction 
which  the  use  or  consumption  of  it  will  bring, 
or  from  the  belief  that  it  can  be  exchanged  for 
some  other  thing  that  will  give  satisfaction  in 
use  or  consumption.  The  value  of  money  is 
due  to  the  latter  of  these  two  causes.  No 
one  wants  money  except  for  the  purpose  of 
exchanging  it  for  other  commodities ;  under 
modern  conditions  it  is  necessary  for  this 
purpose,  —  it  is  the  indispensable  requisite  to 
the  satisfaction  of  certain  human  wants. 
Money,  therefore,  possesses  an  indirect  if  not 
a  direct  subjective  value  which  forms  the 
basis  of  its  exchange  value.  Paper  money 
possesses  the  power  of  satisfying  this  need 
for  money  to  the  same  extent  that  coin  does, 
under  like  conditions,  and  it  has,  therefore, 
both  subjective  value  and  exchange  value, 
and  the  latter  is  governed  by  the  same  law 
of  supply  and  demand  that  operates  in  all 
cases. 


24  HONEST    MONEY. 

The  fact  that  the  material  of  which  the 
money  is  made  is,  in  one  instance,  of  great  cost, 
and,  in  the  other,  of  little  or  no  cost,  is  of 
minor  consequence.  The  minting  of  gold  and 
silver  into  coin  may,  or  may  not,  add  to  its 
value ;  it  really  transforms  it  into  another 
commodity  — money  —  and  its  value  is  thence- 
forth determined  by  the  law  of  supply  and 
demand  as  applied  to  money.  The  same  is 
true  of  paper  money,  the  low  cost  in  the  pro- 
duction of  which  is  not  an  element  in  deter- 
mining its  value,  for  its  production  is  always 
a  monopoly.  There  is  no  reason,  then,  for 
not  considering  paper  currency  as  money,  and 
in  using  the  term  we  wdll  consider  its  mean- 
ing to  be  that  given  by  Professor  Walker,  — 
which  is  also  its  popular  significance,  —  and 
as  including  both  paper  money  and  coin. 

It  should  be  considered,  whether  of  one  ma- 
terial or  of  several  circulating  concurrently, 
as  a  single  commodity  created  for  the  purpose 
it  fulfils,  and  as  separate  and  distinct  from  the 
material  of   which    it  is  made.     In  short,  as 


MONEY.  25 

that  commodity  to  wliicli,  by  common  consent 
and  usage,  generally  sanctioned  by  law,  all 
other  commodities  are  referred  as  a  measure 
of  value,  and  by  means  of  which  exchanges 
are  effected. 

Tlie  Functions  and  Requirements  of  Money. 

Professor  Jevons,  in  his  valuable  work, 
"  Money  and  the  Mechanism  of  Exchange," 
gives  to  money  the  following  threefold  func- 
tions, viz.  as  :  — 

A  medium  of  exchange. 

A   measure  of  value. 

A  standard  of  deferred  payments. 

He  also  inquires  if  it  does  not  perform  a 
fourth  function  as  a  '  store  of  value.' 

All  authorities  give  the  first  two  of  the 
above  as  the  prhicipal  money  functions. 
Some  include  one  or  both  of  the  others,  and 
some  omit  both. 

Prof.  F.  A.  Walker  objects  to  the  use  of  the 
term  "  measure  of  value,"  on  the  ground  that 
vakie,  being  a  relation,  cannot  be  measured 


26  HONEST    MONEY. 

but  can  only  be  expressed.  He  proposes, 
instead,  the  term,  "common  denominator  of 
value."  It  is  not  quite  clear  why  a  relation 
or  ratio  cannot  be  measured,  —  the  measure, 
of  course,  being  a  similar  ratio,  —  nor  does 
there  seem  to  be  anything  gained  by  the 
change,  while  the  term  proposed  seems  less 
clear  and  correct  than  the  one  in  general  use. 
Money,  or  the  value  of  the  unit  of  money, 
is  used  as  a  measure  in  comparing  the  values 
of  other  things  just  as  a  yardstick,  or  the 
length  of  a  yard,  is  used  in  comparing  the 
lengths  of  other  objects. 

Money,  in  acting  as  a  medium  of  exchange, 
must  also  act  as  a  store  of  value  to  some 
extent,  since  it  stores  the  value  received 
until  it  is  expended ;  but  the  use  of  money 
for  the  purpose  of  hoarding  is  not  to  be  re- 
garded as  strictly  one  of  its  functions,  at 
least  not  in  the  sense  of  requiring  to  be  es- 
pecially provided  for.  The  fact  that  it  is  so 
used,  however,  should  be  borne  in  mind,  as 
it  interferes  more  or  less  with  its  other  and 


MONEY.  27 

more  important  functions ;  but  in  considering 
the  qualities  necessary  to  the  best  perform- 
ance of  the  functions  of  money  we  may  omit 
tliis  last  function,  as  any  money  which  fills 
the  requirements  for  the  others  will  fulfil 
those  necessary  to  this  in  a  sufficient  degree 
considering  its  minor  ini]X)rtance.  As  our 
inquiries  in  this  woi'l^  ^vill  l)e  confined  to  the 
money  materials  now  in  general  use,  viz., 
gold,  silver,  and  paper,  we  need  not  consider 
the  qualities  necessary  to  a  money  material, 
as  given  by  PiT)fessor  Jevons, —  such  as  por- 
tability, indestructibility,  divisil)ility,  etc.,  — 
further  than  to  say  that  the  qualities  he  men- 
tions are  possessed  by  all  of  the  money  ma- 
terials now  in  use,  in  a  sufficient  and  nearly 
equal  degree.  Coin,  to  Ijc  sure,  is  more  in- 
destructible than  paper;  l)ut  as  the  paper  is 
sufficiently  acceptal)lo  for  the  purpose,  the 
difference  need  not  concern  us. 

Aside  from  that  general  accejDtability, 
which  is  the  very  essence  of  money,  —  with- 
out which  no  commodity  could  be  considered 


28  HONEST    MONEY. 

money,  and  which,  therefore,  all  money  may 
be  considered  as  having,  —  the  great  require- 
ments of  money  are  invariable  value,  added  to 
convenience  of  fonn,  size,  iveight,  and  value. 

This  latter  requirement  pertains  to  the 
function  of  a  medium  of  exchange,  and  the 
degree  in  which  it  is  possessed  by  the  differ- 
ent money  materials  or  kinds  of  money,  de- 
pends wholly  on  the  values  to  be  transferred 
by  its  use.  For  small  amounts,  silver  is  pref- 
erable to  either  gold  or  paper ;  as  the  amount 
increases,  gold  becomes  preferable  to  silver; 
and  for  all  amounts  above  fractional  cur- 
rency, paper  money  is  unquestionably  more 
convenient  in  every  way  than  either  gold  or 
silver,  and  the  advantage  increases  with  the 
amount. 

Invariable  value  is  the  great  requirement  for 
both  the  functions,  —  "a  measure  of  value" 
and  "  a  standard  of  deferred  payments."  In- 
deed these  two  functions  may  practically  be 
considered  one  ;  the  only  difference  between 
them  being  centred  in  the  element  of  time, 


MONEY.  29 

and  that  is  more  or  less  involved  in  every 
exchange  requiring  the  use  of  money,  since 
some  interval  must  elapse  between  the  sale 
of  one  commodity  and  the  purchase  of  another 
with  the  money  received,  —  which  consti- 
tutes the  whole  exchange  transaction,  —  and 
during  such  interval  the  money  should  main- 
tain a  constant  value.  When  the  interval  over 
which  the  transaction  is  spread  is  a  large 
one,  as  in  the  case  of  notes  and  bonds,  any 
variability  is  more  noticeable  than  when  the 
change  is  distributed  among  many  holders  of 
money. 

Before  considering  further  the  great  neces- 
sity for  invariable  money  value,  it  will  be 
best  to  consider  the  laws  and  forces  which 
determine  and  control  the  value  of  money. 

Money  Value. 

That  money  is  a  commodity,  and  that  its 
value  varies  like  that  of  every  commodity 
in  accordance  with  the  law  of  supply  and 
demand,  are  incontestable. 


30  HONEST    MONEY. 

The  fluctuations  in  the  vahie  of  money  can 
be  detected,  it  is  clear,  in  the  same  way  that 
changes  in  the  vakie  of  any  commodity  can 
be  detected,  by  comparison  with  all  other 
commodities,  —  by  its  average  purchasing 
power,  in  short. 

The  value  of  a  commodity,  when  measured 
by  money  and  expressed  in  terms  of  the  unit 
of  money,  is  called  itspWce.  If  the  prices  of 
all  commodities,  or  the  average  of  all,  rise  or 
fall,  it  is  conclusive  evidence  that  the  value 
of  money  has  changed,  for  its  purchasing 
power  is  less  in  the  one  case  and  greater  in 
the  other.  Indeed  the  statement  that  gen- 
eral prices  have  fallen  is  equivalent  to  saying 
that  the  value  of  money  has  increased,  and 
vice  versa.  Therefore,  if  the  value  of  money 
remains  stable,  average  prices  must  remain 
constant. 

The  following  quotations  will  show  that 
these  views  are  correct,  and  that  they  are 
generally  accepted  by  authorities  on  finance 
and  political  economy,  though  very  commonly 


MONEY.  31 

overlooked  and  neglected  in  discussions  on 
the  subject. 

John  Stuart  Mill,  in  his  '-  Principles  of 
Political  Economy,"  says  :  — 

"  There  is  such  a  thing  as  a  general  rise  of 
prices.  All  commodities  may  rise  in  their 
money  price.  But  there  cannot  be  a  general 
rise  of  values.  It  is  a  contradiction  in 
terms."  '^  That  the  money  prices  of  all 
things  should  rise  or  fall,  provided  all  rise  or 
fall  ecjually,  is  in  itself,  and  apart  from  ex- 
isting contracts,  of  no  consequence.  It  affects 
nobody's  wages,  profits,  or  rent.  Every  one 
gets  more  money  in  the  one  case  and  less  in 
the  other  ;  but  of  all  that  is  to  Ije  bought 
with  money  they  get  neither  more  nor  less 
than  before.  It  makes  no  other  difference 
than  that  of  using;  more  or  fewer  counters 
to  reckon  by.  The  only  thing  which  in  this 
case  is  really  altered  in  value  is  money ;  and 
the  only  persons  who  either  gain  or  lose  are 
the  holders  of  money,  or  those  who  have  to 
receive  or  pay  fixed  sums  of  it.   .  .  .     There 


32  HONEST    MONEY. 

is  a  disturbance,  in  short,  of  fixed  money 
contracts,  and  tliis  is  an  evil  whether  it  takes 
place  in  the  debtor's  favour  or  in  the  cred- 
itor's. .  .  .  Let  it  therefore  be  remembered 
(and  occasions  will  often  rise  for  calling  it  to 
mind)  that  a  general  rise  or  a  general  fall 
of  values  is  a  contradiction ;  and  that  a  gen- 
eral rise  of  prices  is  merely  tantamount  to  an 
alteration  in  the  value  of  money,  and  is  a 
matter  of  complete  indifference  save  in  so  far 
as  it  affects  existing  contracts  for  receiving 
and  paying  fixed  pecuniary  amounts." 

"  The  value  of  a  thing;  is  what  it  will 
exchange  for :  the  value  of  money  is  what 
money  will  exchange  for ;  the  purchasing 
power  of  money.  If  prices  are  low,  money 
will  buy  much  of  other  things,  and  is  of 
high  value ;  if  prices  are  high,  it  will  buy 
little  of  other  things,  and  is  of  low  value. 
The  value  of  money  is  inversely  as  general 
prices :  falling  as  they  rise  and  rising  as  they 
fall." 

"  The  value  of  money,  other  things  being 


MONEY.  33 

the  same,  varies  inversely  as  its  quantity ; 
every  increase  of  quantity  lowering  the 
value,  and  every  diminution  raising  it  in  a 
ratio  exactly  equivalent." 

"  That  an  increase  of  the  quantity  of 
money  raises  prices,  and  a  diminution  low- 
ers them,  is  the  most  elementary  proposition 
in  the  theory  of  currency." 

The  expression,  "  other  things  being  the 
same,"  in  one  of  these  quotations,  evidently 
means  "demand  remaining  the  same,"  and 
the  terms  increase  and  decrease  of  money  un- 
questionably refer  to  the  increase  and  decrease 
relative  to  demand,  since  the  writer  further 
says : — 

"  If  there  be  at  any  time  an  increase  in 
the  number  of  money  transactions,  a  thing 
continually  liable  to  happen  from  differences 
in  the  activity  of  speculation,  and  even  in 
the  time  of  year  (since  certain  kinds  of  busi- 
ness are  transacted  only  at  particular  sea- 
sons) ;  an  increase  of  the  currency  which  is 
only  proportional  to  this  increase  of  transac- 


34  HONEST    MONEY. 

tions,  and  is  of  no  longer  duration,  has  no 
tendency  to  raise   prices." 

Per  contra^  therefore,  unless  the  currency 
be  increased  to  meet  such  increased  demand, 
there  will  be  a  tendency  to  decreased  prices 
and  consequent  change  in  the  value  of  money. 

Stronger  statements  than  these  of  Mill's, 
or  by  an  abler  authority,  could  not  be  asked 
for. 

Prof.  R.  T.  Ely,  in  his  "  Political  Economy," 
remarks,  p.  179  :  — 

"  Values  are  merely  relative,  and  conse- 
quently there  can  be  no  such  thing  as  a 
general  rise  or  fall  of  values." 

■^^  Value  expressed  in  money  is  called  price. 
There  can  be  such  a  thing  as  a  general  fall 
or  a  general  rise  of  prices.  A  general  fall 
in  prices  means  an  increase  in  the  value  of 
money,  and  a  general  rise  of  prices  means 
a  fall  in  the  value  of   money." 

David  Ricardo  observes  that :  — 

"  The  value  of  money,  then,  does  not 
wholly   depend   upon    its    absolute   quantity, 


MONEY.  35 

but  on  its  quantity  relatively  to  the  pay- 
ments it  has  to  accomplish." 

The  last  edition  of  the  "  Encyclopaedia 
Britannica  "  says,  as  a  conclusion  in  discussing 
the  vahie  of  money,  and  referring  evidently 
to  coin  alone  :  — 

"  The  most  correct  way  to  regard  the  ques- 
tion of  money  value  is  that  which  looks  on 
supply  and  demand,  as  interpreted  above,  as 
the  regulator  of  its  value  for  a  limited  time, 
while  regarding  cost  of  production  as  a  force 
exercising  an  influence  of  uncertain  amount 
on  its  fluctuations  during  long  periods." 

This  view  is  in  exact  accordance  with  the 
conclusions  previously  stated  in  regard  to 
the  values  of  all  commodities. 

The  Encyclopaedia  further  says  :  — 

"Where  the  coinage  of  a  State  is  arti- 
ficially limited,  the  value  of  its  money 
plainly  depends  on  supply  and  demand." 

Quotations  might  be  multiplied  indefinitely 
to  the  same  effect ;  but  enough  have  been 
given  to  show  the  general  consensus  of  opinion. 


36  HONEST    MONEY. 

Indeed  it  may  seem  that  there  is  no  neces- 
sity for  accumulating  evidence  in  support  of 
propositions  so  apparent  as  those  stated; 
unfortunately,  however,  not  a  few  recent 
writers  have  ignored  some  of  them,  and  the 
general  public  seem  to  make  the  same  mis- 
take ;  hence,  it  is  of  the  utmost  importance 
that  they  be  kept  clearly  in  mind. 

Mo7iey  Demand  and  Siqjjoly. 

Mill  affirms  that :  ''  The  supply  of  money 
is  all  the  money  in  eircidation  at  the  time." 

Money  that  is  hoarded  has  no  more  effect 
on  prices  than  if  it  did  not  exist.  Money 
lying  in  banks  or  in  the  hands  of  merchants 
or  others  to  the  extent  necessary  for  the  safe 
conduct  of  their  business  may  be  considered 
money  in  circulation,  but  beyond  the  amount 
needed  for  conducting  any  business  the  excess 
may  l>e  considered  as  hoarded.  The  supply 
of  money  in  any  country  depends  directly  and 
primarily  on  the  legislation  of  that  country ; 
and  secondarily,  in  most,  but  not  in  all  cases, 


MONEY.  37 

on  the  legislation  of  other  countries,  and  the 
production  of  precious  metals  available  for 
coinage,  etc.,  all  of  which  can  be  better  ana- 
lyzed in  explaining  the  different  systems. 

The  demand  lor  money  is  most  complicated, 
since  it  is  affected  by  a  great  variety  of  forces. 
It  varies  directly  witli  the  activity  of  com- 
merce, and  universally  with  the  activity  of 
money,  —  a  less  amount  of  money  doing  a 
greater  work  when  active  than  when  sluggish. 
It  is  affected  by  changes  in  the  customs  and 
habits  of  the  people,  by  changes  in  transpor- 
tation facilities,  in  diversity  of  employment, 
in  concentration  of  population,  and,  more 
than  all  other,  it  is  affected  by  the  extent 
of  credit,  the  use  of  banking  facilities,  etc. 

Credit  in  its  various  forms  takes  the  place 
of  money,  and  does  its  work  in  this  respect 
to  an  enormous  and  continually  increasing 
extent.  Through  the  medium  of  banks,  — 
which  are  really  institutions  for  the  exchange 
of  credit,  —  and  by  means  of  checks,  drafts, 
notes,  bills  of  exchange,  letters  of  credit,  post- 


3864'?5 


38  HONEST    MONEY. 

office  and  express  money  orders,  etc.,  the  great 
bulk  of  the  world's  busmess  is  transacted. 

Statistics  gathered  from  national  banks  in 
this  country  in  1881,  showed  that  of  the  total 
deposits,  ninety-five  (95)  per  cent  were  in 
forms  of  credit  to  five  (5)  per  cent  in  actual 
money,  the  percentage  of  credit  paper  rising 
in  New  York  City  to  as  high  as  98.7. 

While  these  percentages  may  not  show 
accurately,  on  the  whole,  the  relative  work 
done  by  money  and  by  forms  of  credit,  they 
do  show  the  enormous  extent  to  which  credit 
takes  the  place  of  money,  and  the  greatly 
increased  demand  for  money  that  arises, 
when,  from  lack  of  confidence  or  other  causes, 
the  extent  of  the  credit  is  lessened.  Unless 
the  volume  of  money  immediately  adapts 
itself  to  such  demand,  the  value  of  money 
must  inevitably  increase,  or  the  demand  be 
lessened  by  a  checking  of  all  business  transac- 
tions, and  a  partial  paralysis  of  the  industries 
of  the  country.  Generally  both  of  these 
results  follow. 


MONEY.  39 

With  these  facts  in  mind,  it  is  evidently 
futile  to  attempt  to  hx  any  definite  amount 
of  money,  per  capita,  as  the  pj^oper  one.  Not 
only  does  the  amount  necessary  to  meet  the 
demand  vary  with  different  countries,  per 
capita,  even  among  the  most  civilized  nations, 
but  it  varies  with  the  seasons  in  each  country, 
as  crops  have  to  be  moved  oi'  not,  and  with 
the  state  of  credit  and  enterprise  from  day  to 
day.  France,  where  the  habits  and  customs 
of  the  people  have  prevented  their  making  so 
large  a  use  of  credit  and  banking  facilities 
as  in  England,  requires  a  larger  amount  of 
money,  per  capita,  than  does  England. 

Since  the  value  of  money  depends  on  these 
two  factors,  supply  and  demand,  if  we  are  to 
have  a  money  of  invariable  value,  we  must 
evidently  control  one  or  both  of  these.  It 
would  be  hopeless  to  attempt  to  control  all 
the  various  conditions  and  forces  which,  we 
have  seen,  afiect  the  demand  for  money.  For- 
tunately it  is  not  necessary.  We  cannot  con- 
trol the  demand,  but  we  have,  or  can  have, 


40  HONEST    MONEY. 

complete  control  over  the  supply,  and  we  can 
by  this  means  maintain  that  constant  relation 
between  the  supply  of,  and  the  demand  for, 
money  which  is  essential  to  its  stability  of 
value. 

Necessity  for  Inimriahle  Money  Value. 

Returning  to  the  reasons  for  an  invariable 
money  value,  they  are  best  appreciated  by 
considering  the  effects  of  one  that  is  vari- 
able. While  the  statement  of  Mill,  previously 
quoted,  "  that  the  money  prices  of  all  things 
should  rise  or  fall,  provided  all  rise  or  fall 
equally,  is  in  itself  and  apart  from  existing 
contracts,  of  no  consequence,"  is  true,  yet 
is  it  true  only  under  the  condition  specified, 
that  all  shall  rise  or  fall  equally,  and  this  con- 
dition in  the  case  of  a  fluctuating  money  value 
never  obtains.  Aside  from  the  exception 
which  Mill  makes  of  fixed  money  contracts, 
which  can  never  adjust  themselves  at  all  to  a 
changed  money  value,  —  and  the  exception  is 
of   enormous  volume  and   importance,  —  the 


MONET.  41 

prices  of  many  coiiimoditiu.s  are  not  adjustable 
quickly  or  readily  to  a  change  in  money  value, 
especially  when  such  change  is  an  increase. 
There  is  a  persistency  or  inertia  about  prices 
tliat  in  many  instances  resists  a  reduction. 
Wasres  can  never  be  reduced  without  friction 
and  often  strikes.  The  fact  that  commodi- 
ties have  fallen  and  that  the  lower  wages  will 
buy  as  much,  or  more,  than  the  higher  ones 
formerly  did,  is  slow  of  appreciation  ;  hence 
the  employer  caught  between  the  difficulty  of 
reducing  his  employes'  wages  and  the  falling 
prices  of  his  products,  is  injured  by  an  in- 
creased money  value.  When  the  change,  on 
the  other  hand,  is  a  decrease  of  money  value, 
the  employer  will  not  as  a  rule  advance  wages 
until  compelled  to  do  so,  and  the  labourer  suf- 
fers meanwhile  from  the  rising  prices  of  com- 
modities. 

When  prices  fall,  the  producers  of  a  com- 
modity are  not  apt  to  recognize  that  it  is  a 
general  fall,  a  change  in  money  value ;  but 
accustomed  to  regard  money  as  invariable  in 


42  HONEST    MONEY. 

value,  as  it  should  be,  and,  failing  to  see  any- 
thing in  the  conditions  affecting  their  own 
particular  product  that  should  lower  the  price, 
they  delay  or  refuse  to  sell,  hoping  for  higher 
prices  ;  and  all,  or  a  large  number,  doing  this, 
makes  business  dull. 

The  great  injury  and  evil  of  changing 
money  value  comes,  however,  through  fixed 
money  contracts.  The  enormous  amount  of 
bonded  indebtedness,  railroad,  municipal, 
county,  state,  and  national,  makes  the  slightest 
change  of  money  value  of  vast  importance, 
and  added  to  these  is  the  aggregate  volume 
of  commercial  and  private  debts. 

In  short,  a  change  of  money  value  either 
way  is  a  robbery,  and  none  the  less  repre- 
hensible because  it  is  legal  and  insidious. 
Indeed,  it  is  perhaps  more  damaging  in  its 
secondary  effects  because  of  its  insidiousness. 
An  open  danger  may  be  guarded  against, 
but  the  hidden  danger,  known  to  exist,  but 
which  cannot  be  located  or  prevented,  only 
excites  fear  and  distrust,  and  checks  all  move- 


MONEY.  43 

ment.  Nor  is  the  damage,  in  its  secondary 
ettects,  confined  to  those  involved  in  fixed 
money  contracts.  Piracy  on  the  seas  or 
robbery  on  a  highway,  when  common,  injure 
not  alone  those  who  are  robbed.  The  fear 
and  distrust  engendered  by  such  occurrences 
damage  and  delay  all  commerce  ;  and  the  cost 
of  protection  against  these  menaces,  or  of 
avoiding  them  by  taking  more  circuitous 
routes,  are  a  burden  on  the  whole  people. 
So  the  robbery  by  a  fluctuating  money  value 
affects,  indirectly,  the  whole  community, 
while  the  indirect  effects  are  far  worse.  In 
the  case  of  a  decreasing  money  value  the 
robbery  does  not  bring  such  disastrous  con- 
sequences in  its  train  as  where  the  change 
is  an  increase,  owing  to  the  different  condi- 
tions of  the  people  robbed. 

A  slight  decrease  of  money  value  generally 
brings  about  a  stimulation  of  trade  and  indus- 
try, the  rising  prices  of  commodities  acting 
as  a  spur  to  greater  production  and  new 
enterprises. 


44  HONEST    MONEY. 

Mr.  F.  A.  Walker,  indeed,  considers  that 
for  this  reason,  and  in  spite  of  the  recognized 
injustice  to  some  classes,  that  such  a  condi- 
tion when  slight  and  brought  about  by  natural 
causes,  is  a  benefit  on  the  whole.  It  can 
hardly  be  admitted  that  robbery  of  one  large 
class  in  a  community  is  defensible,  even  if  it 
does  result  in  a  gain  to  another  class  greater 
than  the  loss  to  the  first.  It  is  indisputable, 
however,  that  the  opposite  case,  wdiere  money 
is  increasing  in  value,  brings  such  disasters 
in  its  train  that  it  would  be  better,  if  an  in- 
variable value  for  money  could  not  be  attained, 
that  the  variation  should  be  a  decrease  rather 
than  an  increase.  In  the  latter  case  not  only 
is  the  robbery  equally  great,  but  falling  upon 
the  most  active,  industrious,  and  enterprising 
class  of  the  community,  —  for  it  is  this  class 
as  a  rule  that  are  borrowers,  —  it  not  only 
imperils  all  they  possess,  but  discourages, 
when  long  continued,  all  forms  of  industry 
and  enterprise.  In  this  way  it  throws  thou- 
sands of  men  out  of  employment  and  brings 


MONEY.  45 

suffering  and  hardship  to  thousands  more. 
No  other  one  cause,  perhaps,  is  more  respon- 
sible for  "  panics  "  and  "  hard  times,"  with 
their  attendant  evils  —  tramps,  pauperism,  and 
crime.  Its  evils  have  been  painted  by  many 
writers,  and  it  is  scarcely  possible  to  exagger- 
ate them.  Of  all  ills,  war  and  pestilence 
alone  seem  to  fill  the  cup  of  human  suffering 
more  nearly  full  than  the  depression  and 
stagnation  of  industry  which  is  brought 
about  by  constantly  declining  prices. 

In  view  of  these  facts,  the  necessity  for 
a  money  that  shall  vary  in  its  amount  in 
accordance  with  the  demands  of  business  is 
evident.  Not  only  must  it  respond  to  the 
long-continued,  slow,  and  almost  impercep- 
tible increase  of  demand  due  to  growing  trade 
and  population,  but  it  should  also  respond, 
quickly  and  surely,  to  those  sudden  demands, 
known  as  panics,  wdien  credit  fails  for  any 
reason  to  do  its  usual  work.  This  need  is 
recognized  by  bankers  in  their  demand  for 
a  flexible  or  elastic  currency. 


46  HONEST    MONEY. 

Quotations  are  hardly  necessary  in  support 
of  the  foregoing  statements,  but  a  few  may  be 
given.  David  Ricardo,  in  "  Proposals  for  an 
Economic  and  Secure  Currency,"  observes 
that  :  — 

"  All  writers  on  the  subject  of  money  have 
agreed  that  uniformity  in  the  value  of  the 
circulating  medium  is  an  object  greatly  to 
be  desired." 

"  A  currency  may  be  considered  as  perfect 
of  which  the  standard  is  invariable,  which 
always  conforms  to  that  standard,  and  in 
the  use  of  which  the  utmost  economy  is 
practised." 

"During  the  late  discussions  on  the  bul- 
lion question,  it  was  most  justly  contended, 
that  a  currency  to  be  perfect  should  be  ab- 
solutely invariable  in  value." 

Prof.  J.  L.  Laughlin,  in  "The  History  of 
Bi-metallism  in  the  United  States,"  remarks, 
p.  70:  — 

"  The  highest  justice  is  rendered  by  the 
state  when  it  exacts  from  the  debtor  at  the 


MONEY.  47 

end  of  a  contract  the  same  j^wchasijig  jioioer 
wliicli  the  creditor  gave  him  at  the  begin- 
ning of  the   contract,  no  less,  no  more." 

Prof.  R.  T.  Ely  says,  in  his  "  Political  Econ- 
omy," p.  191 :  — 

"  It  is  not  the  '  much  or  little,'  but  it  is  the 
*more  or  less'  that  is  of  vital  concern.  Noth- 
ing produces  more  intense  suffering  than  a 
decrease  in  the  amount  of  money,  and  this  is 
on  account  of  the  connection  between  past, 
present,  and  future  in  our  economic  life." 

This  refers  to  a  decrease  relative  to  the 
demand,  evidently,  and  he  says,  further :  — 

"  If  the  amount  of  inoney  is  arbitrarily 
increased,  so  that  the  value  of  all  debts  may 
fall,  it  amounts  to  virtual  robbery  of  the 
creditors.  When  arbitrarily  the  amount  of 
money  is  decreased,  it  amounts  to  virtual 
robbery  of  the   debtor   class." 

''  It  may  also  be  urged  that  with  the  prog- 
ress of  improvements  in  industry,  prices  tend 
to  fall,  and  that  unless  money  increases  in 
amount,  those  who   take   no   active    part   in 


48  HONEST    MONEY. 

these  improvements,  nevertheless  gain  the 
benefit  of  them." 

Prof.  Sidney  Sherwood,  in  the  "  History 
and  Theory  of  Money,"  says,  p.  225  :  — 

"  The  ideal  that  we  want,  so  far  as  price 
adjustment  is  concerned,  is  to  keep  prices 
stable,  so  that  a  contract  which  is  payable 
in  one  year  from  now  can  be  paid  with  just 
the  amount  of  commodities  which  will  then 
represent  the  value  stated  in  the  contract 
of  to-day.   .  .  . 

"  That  is  what  we  want,  —  a  stability  of 
prices  that  persists  from  one  year  to  another 
and  from  one  generation  to  another.   .   .   . 

"  The  object  at  which  we  aim  is,  as  it 
seems  to  me,  a  currency  which  shall  keep 
prices  stable,  a  currency  which  shall  expand, 
therefore,  with  the  expansion  of  trade  and 
commerce  and  development  generally,  a  cur- 
rency which  shall  not  be  lagging  behind  the 
commerce  and  development  of  the  country, 
and  hindering  that  development,  and  a  cur- 
rency which  shall  not,  by  being  too  rapidly 


MONEY.  49 

increased,  lead  to  excessive  speculation  and 
to  loss." 

We  may  summarize  these  conclusions  in 
regard  to  money  then  as  follows :  — 

Money  should  have  an  invariahle  value. 

Tlie  test  of  invariahle  money  value  is  stabil- 
ity of  prices  in  general. 

The  value  of  money  depends  on  the  supply 
of  it  relative  to  the  demand  for  it. 

The  demand  for  money  is  variable  and  un- 
certain. It  is  affected  by  a  great  variety  of 
circumstances,  most  of  which  are  beyond 
control. 

The  supply  is  in  all  cases  regulated  directly 
or  indirectly  by  law,  and  can  be  controlled. 

In  any  monetary  system  it  is  necessary, 
therefore,  that  the  supply  should  adjust  itself 
quickly  and  correctly  to  any  changes  in  de- 
mand, so  that  prices  of  all  commodities  shall, 
on  the  averag:e,  neither  rise  nor  fall.  In  this 
way,  and  in  no  other,  can  an  honest  money 
be  obtained. 

It  is  believed  that  these  conclusions  cannot 


60  HONEST    MONEY. 

be  successfully  controverted,  and,  using  them 
as  a  basis,  we  now  purpose  to  examine  exist- 
ing monetary  systems,  and  some  proposed 
changes  therein,  to  see  in  how  far  they  con- 
form to  this  requirement,  and  what  can  be 
done  for  their  improvement. 


CHAPTER   ITT. 

EXISTING    MONETARY    SYSTEMS. 

Various  substances  have  been  used  as 
money  in  the  past.  The  ''  survival  of  the 
fittest"  has,  however,  eliminated  all  but  three 
(omitting  fractional  coins),  and  these  are 
used,  singly  or  in  combination,  at  present 
in  all  the  civilized  nations  of  the  world. 
These  three  are  gold,  silver,  and  paper.  Gold 
and  silver  are  generally  used  in  the  form  of 
coins  of  definite  weight  and  fineness.  Paper 
money  is  a  promissory  note  issued  by  the  gov- 
ernment, or  by  authorized  banks,  promising  to 
pay  the  bearer,  on  demand,  the  amount  of 
coin  specified  on  its  face. 

Where  this  promise  is  kept,  and  coin  is 
paid  on  demand,  the  paper  is  said  to  be  con- 

51 


52  HONEST    MONEY. 

vertible.  Where,  for  any  reason,  the  promise 
is  not  kept,  and  the  amount  of  coin  specified 
will  not  be'  given  on  demand,  the  paper  is 
called  inconvertible  or  irredeemable. 

As  the  coins  which  are  used,  and  which  are 
promised  to  be  given  in  exchange  for  paper, 
may  be  either  of  gold  or  silver,  or  both,  the 
system  is  said  to  be  a  gold  standard  or  a  silver 
standard,  according  to  which  one  is  used,  or 
a  bi-metallic  standard  if  both  are  used  under 
certain  conditions.  At  present,  as  will  be  ex- 
plained in  considering  that  system,  there  is 
no  country  that  is  really  using  a  bi-metallic 
standard. 

Where  the  paper  money  is  inconvertible, 
the  coin  on  which  it  is  based  does  not  cir- 
culate with  it  (for  reasons  which  will  appear 
later),  and  such  a  system  must  be  regarded 
as  distinct  from  the  others,  no  matter  whether 
the  basis  be  gold  or  silver.  Three  systems 
are  therefore  in  use,  —  the  gold  standard,  the 
silver  standard,  and  the  inconvertible  paper. 
The  characteristics  of  each  of  these  will  be 


EXISTING    MONETARY    SYSTEMS.  53 


considered  separately,  but,  taken  as  a  whole, 
some  facts  shoidd  first  be  noted. 

Money  in  all  countries  is  at  present  essen- 
tially a  creature  of  the  law.  Not  only  does 
the  government  fix  the  weight  and  fineness 
of  the  coins,  but  it  assumes  the  right  to  make 
the  coins,  and  in  some  cases  to  limit  the  coin- 
age to  a  certain  amount,  or  to  stop  coining 
altogether.  It  also,  in  most  cases,  issues 
the  notes  or  paper  money,  and  where  it  does 
not  it  controls  the  issue  by  laws  regulating 
the  banks  that  do  issue  them.  It  controls 
therefore  in  all  cases  the  volume  of  money 
issued,  both  by  specifying  that  it  shall  be 
made  of  certain  metals  which  are  scarce,  and 
perhaps  limiting  the  coinage  of  those,  and  by 
limiting  the  amount  of  paper  money  that  is 
generally  used,  to  a  greater  or  less  extent,  in 
all  systems. 

There  is  no  international  coin  or  money. 
Gold  and  silver  when  shipped  from  one 
country  to  another  go  as  so  much  bullion ; 
their  value   is  practically  the  same  whether 


54  HONEST    MONEY. 

coined  or  uncoined.  As  Walter  Bagehot 
observes,  in  bis  work  "  Lombard  Street  "  :  — 

''  Witliin  a  country  tbe  action  of  a  govern- 
ment can  settle  tbe  quantity,  and  tberefore 
tbe  value,  of  its  currency ;  but  outside  of  its 
own  country  no  government  can  do  so.  Bul- 
lion is  tbe  casb  of  international  trade;  paper 
currencies  are  of  no  use  tbere,  and  coins  pass 
only  as  tbey  contain  more  or  less  bullion." 

Not  only  is  tbe  value  of  money  as  a  wbole, 
in  any  country,  governed  by  tbe  law  of  sup- 
ply and  demand ;  but  eacb  of  tbese  tbree 
kinds  of  money,  and  eacb  of  tbe  substances 
of  wbicb  tbey  are  made,  is  individually  sub- 
ject to  tbe  same  great  law. 

'Tlie  Gold  Standard. 

The  wide  and  long-continued  use  of  gold 
as  money  bas  led  to  a  popular  impression, 
current  even  among  well-informed  men,  tbat 
somebow,  or  in  some  mysterious  way,  gold 
bas  stability  of  value  and  is  independent  of 
tbose  fluctuations  wbicb  tbey  recognize  in  the 


EXISTING    MONETARY    SYSTEMS.  55 

values  of  all  other  substances.  That  this  is 
wholly  erroneous  is  admitted  by  every  writer 
on  finance,  and  quotations  are  hardly  neces- 
sary to  support  the  statement  that  gold  varies 
in  value  in  the  same  way  and  is  subject  to 
the  same  law  of  supply  and  demand  which 
regulates  all  other  values. 

Along  with  this  conception  of  stability  in 
the  value  of  gold,  has  grown  up  a  very  natural 
belief  that  where  paper  or  silver  circulated 
concurrently  with  gold,  so  long  as  they  were 
mutually  convertil^le,  gold  was  the  medium 
which  regulated  the  value  of  all ;  and  that 
no  matter  what  the  quantities  of  the  others 
might  be,  they  did  not  affect  the  value  of 
the  gold  or  of  the  money  as  a  whole.  This 
is  another  popular  misconception. 

In  one  sense  the  gold  regulates  the  value 
of  the  money,  but  only  to  the  extent  that 
it  limits,  under  the  existing  laws,  the  vol- 
ume of  the  whole  by  its  scarcity.  In  another 
and  wider  sense  the  value  of  the  gold  is  itself 
fixed  and  controlled  by  the  value  of  the  money 


56  HONEST    MONEY. 

in  its  entirety.  The  use  of  gold  for  money  is 
so  enormously  greater  than  its  uses  for  all 
other  purposes,  that  its  value  as  money  fixes  its 
value  as  a  whole,  since  its  money  use  is  by  far 
the  largest  factor  affecting  the  demand  for  it. 

The  demand  for  money  is  generally  an 
indiscriminate  demand,  satisfied  with  paper 
money  or  silver  as  well  as  with  gold  where 
they  circulate  together.  Hence,  every  issue 
of  paper  or  increased  coinage  of  silver  in  any 
such  country,  demand  remaining  the  same, 
lowers  the  value  of  the  money  as  a  whole 
by  increasing  the  supply,  and  since  the  value 
of  gold  is  determined  by  its  value  as  money, 
that  is  lowered  with   the  rest. 

The  value  of  gold  varies,  therefore,  with 
that  of  the  money  as  a  whole  of  which  it 
forms  a  part. 

In  gold  standard  countries  the  coinage  of 
gold  is  unlimited,  and  —  not  to  speak  of  the 
small  mint  charges  —  generally  free.  Under 
these  conditions  the  value  of  gold  coin  and 
gold  bullion  are  the  same,  weight  for  weight. 


EXISTING    MONETARY    SYSTEMS.  57 

The  silver  coin,  which  is  used  to  some  ex- 
tent in  gold  standard  countries,  does  not 
have  either  free  or  unlimited  coinage  at 
present.  Its  bullion  value  is  less  than  its 
nominal  and  actual  value,  which  is  main- 
tained at  a  par  with  that  of  gold  by  the 
limitation  of  its  issue,  —  just  as  in  the  case 
of  paper  money,  —  and  by  the  fact  that 
within  the  country  of  issue  it  does  the 
same  work  as  the  gold,  just  as  paper  money 
does.  Men  will  give  just  as  much  of  any 
commodity  for  the  silver  coin  or  the  paper 
as  they  will  for  the  gold,  because,  their  util- 
ity being  the  same,  their  exchange  value  must 
also  be  the  same. 

With  these  facts  explained,  we  can  proceed 
to  consider  a  very  important  law  affecting  the 
value  of  money  and  its  distribution  among 
different  nations. 

Greshams  Law. 

It  was  noticed  and  stated  many  years  ago 
by  Sir  Thomas  Gresham  that  full-weight  coins 


58  HONEST    MONEY. 

would  not  continue  to  circulate  with  clipped, 
worn,  or  liglit-weight  ones,  and  that  the  latter 
would  drive  the  former  out  of  the  country. 
This  statement  has  been  extended  and  en- 
larged into  what  is  known  as  Gresham's  Law, 
which,  as  generally  formulated,  is  that  a 
poorer  money  will  drive  a  better  one  out  of 
circulation.  In  this  form  it  is  commonly 
accepted  as  true,  but  is  often  misunderstood 
and  misapplied. 

It  is,  in  fact,  but  a  particular  case  of  the 
more  general  law  that  any  commodity  will 
seek  the  market  where  it  is  worth  the  most, 
where  it  will  exchange  for  the  most  of  other 
commodities. 

The  full-weight  coins  would  exchange  for 
no  more  in  the  country  of  issue  than  would 
the  light-weight  ones  (within  certain  limits), 
but  when  it  was  desired  to  ship  coins  to  other 
countries  where  they  were  valued  hy  weight 
and  not  by  tale,  the  full-weight  ones  were 
more  valuable,  and  were,  therefore,  selected 
for  such  shipment,  leaving  the  poorer  ones 
to  circulate  at  home. 


EXISTING    MONETARY    SYSTEMS.  59 

The  larger  application  of  Greshain's  law 
to  money  as  a  whole   is  as  follows :  — 

The  resultants  of  all  the  various  forces 
acting  on  money  value  through  supply  and 
demand  evidently  must  be  different  in  differ- 
ent countries,  and  thereby  may  cause  the 
mone}^  of  one  country  to  rise  in  value  while 
that  of  another  falls.  When  this  occurs  be- 
tween two  countries  using  the  same  metal  as  a 
part  of  their  money,  —  that  is,  either  between 
two  ffold-standard  or  two  silver-standard  conn- 

o 

tries,  Gresham's  law  immediately  operates  to 
bring  the  two  moneys  again  to  a  uniform  value. 
Since  the  gold  varies  in  value  with  the 
money  as  a  whole,  it  will,  under  such  circum- 
stances, be  worth  more  in  the  country  having 
the  higher  money  value  than  in  the  other, 
and  a  flow  of  gold  will  set  in  from  the  coun- 
try where  it  is  worth  the  least  to  the  one 
Avhere  it  has  the  greater  value.  This  flow  of 
gold  decreases  the  amount  of  money  in  the 
country  from  which  it  goes,  and  increases  the 
amount   in  the  other,  thus  raising  the  value 


60  HONEST    MONEY. 

of  money  in  the  one,  and  lowering  it  in  the 
other,  until  they  are  again  on  an  equality 
within  the  limits  of  the  cost  of  shipping  gold 
from  one  to  the  other. 

The  operation  of  this  law,  therefore,  tends 
to  make  the  value  of  money  uniform,  and 
average  prices  the  same  in  all  countries  using 
the  same  standard. 

The  gold  which  thus  flows  from  one  country 
to  another  does  not  go,  of  course,  without  a 
return  of  other  commodities  in  exchange.  The 
operation  will  be  clearer  if  stated  in  its  con- 
verse form. 

Since  prices  and  money  values  are  comple- 
mentary terms,  one  rising  as  the  other  falls, 
and  vice  versa,  a  rise  in  the  value  of  money 
means  lower  prices,  on  the  average,  in  that 
country.  People  will  buy  in  the  cheapest 
market,  and  if  prices  are  lower  in  one  country 
than  in  others,  they  will  buy  in  that  country 
in  preference  to  others ;  the  balance  of  trade, 
as  it  is  called,  will  be  in  their  favour  ;  gold 
will  be  sent  in  payment  for  the  commodities 


EXISTING    MONETARY    SYSTEMS.  Gl 

bought;  it  will  increase  the  money  supply  and 
raise  prices  there,  and  at  the  same  time  it 
will  lower  those  of  the  country  from  wliich 
it  goes  until  prices  in  the  two  are  again  on  a 
level. 

It  must  not  be  supposed,  however,  as  it 
evidently  has  been  by  some,  that  the  opera- 
tion of  this  law  m  reguhiting  prices  and  mak- 
ing; them  uniform  as  between  different  coun- 
tries  at  the  same  time,  has  any  effect  whatever 
on  prices  and  money  values  as  between  two 
different  periods. 

An  increase  or  decrease  of  money  vakie 
may  go  on  simultaneously  in  all  countries, 
and  no  flow  of  gold  Ije  caused ;  the  value  of 
gold  would  continue  to  be  the  same  in  all 
countries,  yet  might  be  much  higher  or  lower 
at  the  end  than  at  the  beginning  of  the 
period. 

To  illustrate :  the  different  countries  may 
be  compared  to  several  tanks  connected  at 
the  bottom  by  pipes,  and  containing  water, 
the  level  of  w^iicli,  representing  money  value, 


62  HONEST    MONEY. 

is  continually  fluctuating  with  the  amounts 
of  water  added  to  or  drawn  from  each  of  the 
tanks.  If  the  water  rises  higher  in  one  tank 
than  in  others,  a  flow  will  set  in  from  the 
higher  to  the  lower  until  all  are  again  on  a 
level ;  but  if  the  cause  of  the  rise  in  the  one 
tank  continues,  or  if  the  cause  extends  to  all 
the  other  tanks,  the  level  in  all  the  tanks  may 
be  greatly  changed. 

So  the  continued  preponderance  of  the 
forces  in  one  direction,  operating  either  to 
decrease  or  increase  money  value  in  one  coun- 
try alone  or  in  all  together,  will  raise  or 
lower  that  value  in  all  the  countries  which 
are  connected  by  the  use  of  the  common 
money  metal,  under  a  free  coinage  system. 
Thus  the  large  discoveries  of  gold  in  one 
country  will  by  this  means  gradually  spread 
themselves  over  all  gold-using  countries.  The 
country  where  the  gold  is  discovered,  is,  of 
course,  the  richer  by  the  amount  discovered, 
and  is  none  the  poorer  because  of  its  flow  to 
other  countries,  for  such  country  receives  the 


EXISTING    MONETARY    SYSTEMS.  63 

same  Vcalue  of  other  coiniiiodities  in  exchange 
for  the  gold. 

Throui^h  the  medium  of  o-old,  therefore, 
general  prices  are  maintained  at  the  same 
level  approximately  in  all  gold-standard 
comitries. 

The  great  defect  of  the  system  is,  that,  be- 
cause of  this  mutual  bond,  no  one  country  can 
adjust  the  volume  of  its  money  to  the  demand 
so  as  to  maintain  prices  constant.  Only  by 
an  agreement  faithfully  carried  out  by  all,  or 
by  most  of  the  leading  countries,  would  this 
be  possible.  There  is  no  such  agreement  now 
existing,  nor  any  likelihood  of  the  leading 
nations  agreeing  to  do  this,  and  the  value 
of  money  in  all  gold-standard  countries  is 
the  resultant  of  all  the  various  forces  that  act 
upon  its  supply  and  demand,  with  no  intelli- 
gent attempt  to  control  either  ;  it  is,  in  fact, 
the  foot-ball  of  politics,  selfish  interests,  and 
chance. 

Neither  the  annual  supply  of  gold  nor  the 
total    amount    used  as   money  is   the  princi- 


64  HONEST    MONEY. 

pal  factor  in  determining  its  value.  It  can- 
not be  doubted  that  if  all  the  nations  now 
using  the  gold  system  were  to  abandon  it, 
the  value  of  the  metal  would  be  but  a  fraction 
of  its  present  value,  and  on  the  other  hand, 
if  all  the  nations  now  using  silver  and  paper, 
in  whole  or  in  part,  as  money,  were  to  change 
to  the  gold  standard,  its  value  would  be  in- 
creased to  many  fold  what  it  is  now.  The 
legislation,  therefore,  of  all  countries  is  the 
great  factor  determining  coin  value,  nut  alone 
in  the  country  legislating,  but  also  in  all 
other  countries  using  gold  and  silver  as  a 
basis  for  their  system.  The  factor  next  in 
importance  is  the  extent  to  which  credit  is 
used  in  the  place  of  money.  The  total  pro- 
duction of  gold  is  so  small  beyond  the  amount 
used  in  the  arts  and  sciences  that  it  would 
require  a  great  change  in  its  value,  and  years 
of  time,  for  any  increased  production  due  to 
higher  value  to  affect  materially  the  quantity 
of  gold  coin  in  use.  The  production  of  gold 
depends  more  on  chance,  and  less  on  its  labour 


EXISTING    MONETARY    SYSTEMS.  65 

cost,  than  the  production  of  ahnost  any  other 
commodity ;  and  though  it  would  be,  and  is, 
stimulated  somewhat  by  a  higher  value,  there 
is  no  such  certainty  of  its  increased  produc- 
tion being  commensurate  with  the  increased 
labour  expended  on  it  as  there  is  in  the  case 
of  most  commodities. 

The  Silver  Standard. 

When  the  money  system  of  a  country  is 
based  on  silver,  and  that  metal  has  free  and 
unlimited  coinage  in  the  mints,  as  gold  has 
in  countries  using  the  gold  standard,  the  same 
laws  apply  as  in  the  case  of  gold.  Exactly 
the  same  forces  operate  to  affect  the  volume 
and  value  of  the  money  except  that  the  pro- 
duction of  silver,  its  use  by  other  nations,  etc., 
are  the  factors,  instead  of  gold  supply  and 
use.  The  coin  and  the  bullion  are  equal  in 
value,  Aveight  for  weight,  and  Gresham's  law 
applies  the  same  as  it  does  to  gold  to  regulate 
the  flow  of  silver  from  one  siher-standard 
country  to  another 


66  HONEST    MONEY. 

In  some  silver-standard  countries,  however, 
the  coinage  is  not  free  and  unlimited,  the 
government  purchasing  the  silver  at  its 
market  rate  and  coining  it  in  such  quan- 
tities as  it  sees  fit.  In  this  case  the  bullion 
value  does  not  coincide  with  the  coinage 
value  :  the  latter  depends  entirely  on  the 
amount  that  is  coined,  relative  to  the  demand 
for  money,  and  is  independent  of  the  bullion 
value  of  the  silver.  The  coin  will  be  of 
higher  value  than  the  bullion,  and  will  not  be 
exported  to  other  countries,  as  the  bullion  is 
equally  valuable  for  that  purpose  and  less 
costly.  It  is  evident  that  the  value  of  money 
is  just  as  dependent  on  chance,  —  that  is,  on 
a  variety  of  causes  too  intricate  and  uncertain 
to  be  controlled,  —  in  the  case  of  the  silver 
standard  with  free  coinage  as  in  the  case  of 
gold;  but  as  some  of  the  forces  acting  on 
silver  are  different  from  those  acting  on  gold, 
one  standard  may  be  much  more  stable  than 
the  other. 


EXISTING    MONETAKV    SYSTEMS.  67 

Bi-metaUism. 

The  theory  of  bi-metallism  —  a  money 
founded  u[)()n  both  gold  and  silver  coin  — 
is  based  upon  the  fact,  before  stated,  that 
the  value  of  each  of  these  metals  is  really 
determined  l)y  the  value  of  the  money,  as 
a  whole,  of  which  they  form  a  part  —  their 
use  for  money  purposes  being  so  much  greater 
than  their  other  uses  as  to  be  the  determining 
factor.  If  all  nations,  or  a  sufficient  number 
of  the  leading  ones,  agree  to  coin  both  gold 
and  silver  in  any  amounts  presented,  and 
at  the  same  ratio,  the  values  of  each  relative 
to  the  other  will  be  fixed  at  that  ratio.  No 
other  market  could  be  found  for  either  metal 
at  a  higher  ratio.  The  plan  requires,  of 
necessity,  free  coinage  of  both  metals  by 
several  nations  and  in  the  same  ratio.  If 
the  ratio  differs  in  different  countries,  or  if 
there  are  too  few  countries  that  are  party  to 
the  agreement,  the  operation  of  Gresham's 
law  will  separate  the  two  metals,  and  cause 


68  HONEST    MONEY. 

each  to  seek  the  country  where  it  is  worth  the 
most  as  measured  in  the  other.  The  supply 
of  each  metal  is  independent  of  the  other, 
and  their  values,  therefore,  can  only  be  kept 
the  same  by  a  control  and  adjustment  of  the 
demand  thereto. 

Where  silver  and  gold  are  both  coined 
freely  at  a  fixed  ratio,  if  the  supply  of  gold 
decreases,  a  portion  of  the  demand  for  that 
metal  —  it  being  more  valuable  than  silver 
—  would  be  immediately  transferred  to  silver, 
raising  the  latter  and  lowering  the  former 
value,  and  thus  keeping  their  values  at  the 
same  ratio.  This,  however,  would  not  neces- 
sarily keep  the  value  of  the  money  constant 
as  regards  general  commodities,  and  prices 
would  still  fluctuate.  The  variations  would 
be  spread  over  both  metals,  and,  as  shown 
by  Jevons  and  others,  would  probably  be 
more  frequent,  though  less  extensive. 

Theoretically,  therefore,  a  bi-metallic  stand- 
ard is  little  if  at  all  better  than  a  single 
standard.     Whether   it  would    be    better  or 


EXISTING    MONETARY    SYSTEMS.  69 

worse  than  gold  or  than  silver  would  depend 
altogether  on  the  conditions  at  any  particular 
time,  and  it  is  therefore  as  much  the  victim 
•of  chance  as  either  of  the  metals  alone,  so 
far  as  providing  a  money  of  stable  value  is 
concerned. 

As  already  stated,  no  nation  is  now  using  a 
bi-metallic  standard.  Countries  like  France 
and  the  United  States,  which  nominally  have 
the  double  standard,  have  long  since  restricted 
or  stopped  the  coinage  of  silver  and  are  really 
on  a  gold  basis,  their  silver  coins  being  at  par 
with  gold  and  worth  much  more  than  their 
bullion  value. 

Prior  to  about  the  jenr  1873  these  nations, 
as  well  as  several  others,  coined  silver  as  well 
as  gold  in  any  amount  presented,  and  all 
nations  using  coin  were  practically  on  a  bi- 
metallic basis,  the  ratio  between  gold  and 
silver  values  having  been  maintained  at  15^ 
to  1  (the  coinage  ratio  in  Europe)  for  many 
years  within  narrow  limits.  The  United 
States  had  adopted  the  ratio  of   15.988  to  1 


70  HONEST    MONEY. 

long  before  this  time,  and  as  a  result  the 
silver  had  all  left  this  country  in  obedience 
to  Gresham's  law,  as  it  was  worth  more 
relative  to  gold  in  Europe. 

About  the  date  above  mentioned  there 
was  a  great  change  in  the  coinage  laws  of 
several  countries.  Germany  changed  to  a 
gold  basis,  selling  a  large  stock  of  silver ; 
France  and  other  nations  also  practically 
changed  to  a  gold  basis  by  stopping  the 
coinage  of  silver.  As  a  result  of  this  the 
relative  values  of  silver  and  gold  changed 
considerably.  The  demand  for  gold  increased, 
and  the  demand  for  silver  decreased.  Silver 
fell  gradually  in  value  relative  to  gold,  and 
this  effect  was  further  affected  by  large  dis- 
coveries and  greater  production  of  silver. 

The  United  States  also  stopped  the  free 
coinage  of  silver  at  about  the  same  time  as 
the  other  countries,  but  this  had  no  imme- 
diate effect  on  the  relative  values  of  the  two 
metals,  for  this  country  was  at  that  time,  and 
for  several  years  afterward,  using  an  incon- 


EXISTING    MONETARY    SYSTEMS.  71 

vertible  papur  iiione}'  —  no  coin  of  either 
kind  being  in  circulation.  It  had,  however, 
a  large  subsequent  effect ;  for  when  the 
United  States  returned  to  a  specie  basis,  if 
the  coinage  of  silver  had  not  been  stopped, 
silver  would  have  been  coined  in  preference 
to  gold,  being  the  cheaper,  and  this  country 
w^ould  have  been  on  a  silver  rather  than  on  a 
gold  basis. 

Paper  Money. 

Paper  money  differs  radically  from  coin  in 
one  respect.  Its  circulation  is  confined  to  the 
country  of  issue.  It  may  indeed  be  confined 
to  a  small  part  of  such  country  —  as  in  the 
case  of  some  of  the  old  bank  notes  —  when 
the  solvency  of  the  issuing  power  is  unknown 
or  uncertain.  This,  however,  may  be  regarded 
as  an  abnormal  case. 

When  issued  by  the  Government  or  by 
authorized  banks  whose  solvency  is  unques- 
tioned, it  is  accepted  as  freely  as  coin,  and  if 
not  so  accepted,  cannot    be    considered  good 


il  HONEST    MONEY. 

money.      We    shall   consider   only    tlie    case 
where  it  is  generally  accepted. 

Being  usually  a  promise  to  pay  coin,  on  de- 
mand, it  can,  in  one  sense,  be  considered  hon- 
est only  when  the  promise  is  kept.  If  the 
issues  are  excessive,  —  that  is,  if  by  increasing 
the  volume  of  the  money  as  a  whole  its  value 
is  lowered  so  that  the  coin  is  worth  more 
in  some  other  country  than  as  a  part  of  that 
money  system,  —  the  coin  will  leave  the  coun- 
try, as  has  been  explained  in  regard  to  gold. 
The  paper  simply  acts  as  so  much  gold  or 
silver  would  act  if  added  to  the  currency, 
forcing  out  a  certain  amount  of  coin.  Wliere 
both  metals  are  used  with  the  paper,  the  one 
to  go  would  depend  on  which  was  worth  the 
most,  relatively,  in  other  countries.  If  the 
issues  of  paper  are  continued  long  enough, 
all  the  coin  will  leave  the  country,  and,  if  still 
continued,  the  value  of  the  money  will  sink 
below  that  of  the  coin,  as  the  paper  will  not 
leave  the  country,  but  will  accumulate,  lower- 
ing  the    value    with   each   new   issue.      The 


EXISTING  monp:tary  systems.  73 

system  will  then  have  cluuigcd  to  an  incon- 
vertible paper  system,  the  value  of  the  money 
bemg  no  longer  dependent  on  the  value  of 
the  coin  on  which  it  is  based,  and  no  longer 
affected  by  changes  of  money  value  in  other 
countries,  but  determined  wholly  by  the 
amount  issued,  relative  to  the  demands  of 
business  in  the  country  of  issue. 

If  the  issues  continue  in  excess  of  demand, 
the  value  will  lower,  even  to  the  point  of  ut- 
ter worthlessness ;  but  if  properly  controlled 
and  limited,  the  value  of  the  money  can  be 
maintained  at  any  point  desired  far  more 
readily  and  easily  than  in  the  case  of  a  con- 
vertible paper  and  coin  system,  since  many 
variable  forces  are  excluded  when  the  con- 
vertibility is  dropped. 

The  amount  of  paper  money  that  can  be 
kept  at  par  with  coin  under  a  convertible 
system  bears  no  fixed  relation  to  the  amount 
of  the  coin.  By  a  proper  control  of  the  vol- 
ume of  paper  issues  their  value  can  be  kept 
equal  to  coin  value,  with  almost  no  coin  in 


74  HONEST    MONEY. 

circulation,  or  in  reserve.  An  excessive  issue 
of  the  paper  will  cause  coin  to  be  exported, 
but  this  export  may  be  checked,  and  an  im- 
port produced  by  withdrawing  some  of  the 
paper. 

Some  control,  therefore,  may  be  exercised 
over  the  value  of  money  under  a  convertible 
system,  to  make  such  value  constant,  but  this  is 
evidently  limited.  If  the  value  of  the  money 
is  falling,  the  decline  can  be  checked,  and  its 
value  made  to  rise,  by  withdrawing  some  of 
the  paper  issues ;  but  this  will  cause  an  impor- 
tation of  coin,  partly  offsetting  the  reduction 
and  checking  such  rise,  and  when  all  the 
paper  has  been  withdrawn,  the  power  of 
control  by  this  method  ceases.  If  the  money 
value  is  rising,  an  increase  of  paper  issues 
will  stop  such  rise,  but  it  will  cause  the  expor- 
tation of  coin  ;  and  when  all  the  coin  has  been 
exported,  the  money  will  cease  to  be  converti- 
ble, and  the  system  will  have  changed  to  an 
inconvertible  one,  —  the  money  still  possessing 
the  same  qualifications  as  a  measure  of  value 


EXISTING    MONETARY    SYSTEMS.  75 

that  it  possessed  in  the  former  case.  The 
only  difference  is,  that  in  the  convertible 
system  the  money  value  is  partly  determined 
by  the  natural  causes  affecting  the  supply  of 
coin,  partly  by  the  laws  and  conditions  of  busi- 
ness in  foreign  countries,  and  partly  by  the 
legislation  at  home,  restricting  the  coinage  or 
the  issue  of  paper ;  while  in  the  inconvert- 
ible system  it  is  determined  wholly  by  the 
control  of  the  issues  relative  to  the  demand 
for  money. 

This  difference  may  constitute  either  a 
merit  or  a  defect,  according  as  the  control 
is  intellis[:ent  and   honest   or  otherwise. 

The  disastrous  consequences  that  have 
resulted  at  various  times  from  the  use  of 
inconvertible  paper  money,  have,  in  every 
case,  been  due  to  a  lack  of  proper  control 
and  to  excessive  issues,  caused  generally  by 
the  want  of  a  reliable  gauge  by  which  to 
determine  tlie  amount  that  should  be  issued, 
and  by  a  misunderstanding  of  the  principles 
involved. 


76  HONEST    MONEY. 

While  paper  money,  though  a  promise  to  pay 
coin,  cannot,  in  one  sense,  be  called  honest, 
unless  the  promise  is  kept ;  in  a  larger  sense 
the  test  of  its  honesty  is  its  invariability 
of  value. 

John  Stuart  Mill  says  of  inconvertible  paper 
money:  — 

"  In  the  case  supposed,  the  functions  of 
money  are  performed  by  a  thing  which  de- 
rives its  power  of  performing  them  solely 
from  convention ;  but  convention  is  quite 
sufficient  to  confer  the  power;  since  noth- 
ing more  is  needful  to  make  a  person  accept 
anything  as  money,  and  even  at  any  arbi- 
trary value,  than  the  persuasion  that  it  will 
be  taken  from  them  on  the  same  terms  by 
others.  The  only  question  is,  what  deter- 
mines the  value  of  such  a  currency ;  since 
it  cannot  be,  as  in  the  case  of  gold  and  sil- 
ver (or  paper  exchangeable  for  them  at  pleas- 
ure), the  cost  of  production.  We  have  seen, 
however,  that  even  in  the  case  of  metallic 
currency,  the  immediate  agency  in  determin- 


EXISTING    MONETARY    SYSTEMS.  77 

ing  its  value  is  its  quantity.  If  the  quantity, 
instead  of  depending  on  the  ordinary  irier- 
cantilo  motives  of  profit  and  loss,  could  be 
arbitrarily  fixed  by  authority,  the  value  would 
depend  on  the  fiat  of  that  authority,  not  on 
the  cost  of  production. 

"  The  quantity  of  a  paper  currency  not 
convertible  into  the  metals  at  the  option  of 
the  holder  caa  be  arbitrarily  fixed ;  espe- 
cially if  the  issuer  is  the  sovereign  power  of 
the  State.  The  value,  therefore,  of  such  a 
currency  is  entirely  arbitrary." 

Prof.  F.  A.  Walker,  in  his  "  Money,  Trade, 
and  Industry,"  observes,  p.  210:  — 

"  After  looking  at  this  subject  from  every 
side,  I  am  at  a  loss  to  conceive  of  a  single 
argument  which  can  be  advanced  to  support 
the  assertion  of  the  economists,  that  paper 
money  cannot  perform  this  function  of  meas- 
uring values,  so-called.  On  the  contrary,  it 
appears  to  me  clear  beyond  a  doubt,  that 
just  so  long  and  just  so  far  as  paper  money 
obtains  and   retains  currency  as  the  popular 


78  HONEST   MONEY. 

medium  of  exchange,  so  far  and  so  long  it 
does  and  must  act  as  the  value  denominator 
or  common  denominator  in  exchange.  And 
I  see  no  reason  to  believe  that  in  this  single 
respect,  hard  money,  so-called,  possesses  any 
advantage  over  issues  of  any  other  form  or 
substance  which  secure  the  degree  of  general 
acceptance  which  is  necessary  to  constitute 
them  money." 

He  says,  further,  on  p.  214  :  — 

"  Such  money,  so  long  as  its  popular  ac- 
ceptance remains  undiminished,  performs  the 
office  of  a  standard  of  deferred  payments  well 
or  ill,  according  as  its  amount  is  regulated." 

Paper  money  is  a  real  economy  over  gold 
and  silver.  Its  use  substitutes  for  those  coins, 
that  involve  much  labour  in  their  production, 
a  money  of  slight  labour  cost,  which,  under 
proper  control,  performs  the  functions  of 
money  even  better  than  the  coin. 

If,  in  any  country  possessed  of  the  gold 
basis  system,  the  gold  product  was  wholly 
deposited    in    vaults,    and    jjaper    certificates 


EXISTING    MONETARY    SYSTEMS.  79 

issued  therefor  to  the  amount  of  the  deposits, 
such  certificates,  if  in  proper  form  and  de- 
nominations, would  answer  all  the  require- 
ments of  a  circulating  medium  even  better 
than  the  gold,  and  their  value  would  be 
exactly  the  same  as  that  of  the  gold  they  re- 
placed. By  this  method,  —  in  a  measure,  the 
English  system,  —  the  country  saves  the  wear 
and  tear,  besides  considerable  loss  of  gold, 
and  is  better  served.  The  gold  thus  de- 
posited, except  a  comparatively  small  amount 
shipped  abroad  at  times,  would  never  be  called 
for :  its  sole  purpose  would  be  to  regulate  by 
its  scarcity  the  amoi\nt  of  the  paper  money 
issued ;  beyond  this  purpose,  it  might  as  well 
be  iron  or  lead  as  gold,  or  might  as  well  have 
remained  in  the  mines,  from  which  it  was  dug 
at  the  expense  of  so  much  labour,  as  to  be  in 
the  vaults. 

It  would  be  difficult  to  conceive  of  a  method 
of  controlling  money  volume  and  value  more 
expensive,  more  clumsy,  and  more  inefficient 
than  this  ;  for,  it  is  to  be  noted,  the  control  in 


80  HONEST    MONEY. 

no  way  adjusts  the  volume  of  money  to  the 
demand,  so  as  to  maintain  a  stable  value,  but 
merely  adjusts  the  value  to  that  ruling  in  other 
countries,  —  a  matter,  as  Ave  shall  see  later,  of 
no  importance  whatever. 


CHAPTER   IV. 

STABILITY    OF    GOLD    AND    SILVER   VALUES. 

Gold- Standard  Prices. 

Having  considered  theoretically  the  Hiii- 
itations  and  possible  merits  and  defects  of 
the  money  systems  now  in  use,  we  shall  next 
consider  in  how  far  the  money  imder  such 
systems  conforms  in  practice  to  the  chief  re- 
quirement,—  stability  of  value. 

Economic  writers  do  not  claim  that  either 
gold  or  silver  is,  or  has  been,  of  invariable 
value;  but  many  of  them  do  claim  that  gold 
is  more  nearly  invariable  than  any  other  com- 
modity, and  that  it  is  sufficiently  so  for 
money  purposes,  the  changes  in  value  being 
slight  and  covering  long  periods  of  time,  so 
that  from  year  to  year  they  are  almost  im- 

G  81 


82  HONEST    MONEY. 

perceptible.  Other  writers  claim  that  silver 
has  been,  of  recent  years  at  least,  more  sta- 
ble in  value  than  gold,  and  is  therefore  a 
better  measure  of  value. 

The  merits  of  these  claims  can  be  tested,  in 
the  same  way  that  the  stability  of  value  of 
any  commodity  can  be  tested,  by  a  com- 
parison of  the  average  purchasing  power  of 
each  metal  at  different  times. 

Prof.  F.  A.  Walker,  in  the  work  already 
cited,  observes,  regarding  money  value  under 
the  gold  standard  as  tested  by  average 
prices :  — 

"  Not  to  speak  of  the  enhancement,  many 
fold,  of  the  value  of  money  through  the  Sil- 
ver Famine  of  the  Middle  Ages,  or  of  the 
sudden  and  extensive  decline  which  has  been 
referred  to  as  taking  place  between  1570  and 
1640,  it  is  estimated  by  Professor  Jevons  that 
the  value  of  gold  fell  46  per  cent,  between 
1789  and  1809,  that  from  1809  to  1849 
it  rose  145  per  cent.,  while  between  1849 
and  1874  it  fell  again  at  least  20  per  cent." 


STABILITY   OF  GOLD    AND  SILVER   VALUES.      88 

Coming  down  to  more  recent  times,  we 
have  more  full  and  accm^ate  data,  and  there 
have  been  several  careful  compilations  and 
averages  of  prices  made  in  different  coiui- 
tries.  The  report  of  the  Finance  Committee 
of  the  United  States  Senate,  52d  Congress, 
on  '■  Wholesale  Prices,  Wages,  and  Trans- 
portation," known  as  the  "Aldrich  Report," 
is  doubtless  the  most  accurate  and  complete 
examination  of  prices  in  this  country  from 
1840  to  1892  that  has  ever  been  made.  This 
report  also  gives  for  comparison  the  tables  of 
Soetbeer  and  Sauerbeck  (two  of  the  most 
distinguished  European  statisticians),  and  the 
table  of  the  Economist  (London)  as  to  for- 
eign prices,  all  reduced  to  the  same  basis, 
and  to  United  States  money  units  in  gold. 

In  order  to  facilitate  comparison  of  these 
data,  the  tables  have  been  platted  as  diagrams 
in  Plate  1.  All  the  tables  were  prepared  by 
taking  the  prices  of  a  selected  list  of  com- 
modities for  the  year  1860  as  100,  and  cal- 
culating the  variations   in  the  price  of  each 


84  HONEST    MONEY. 

commodity  from  the  price  of  that  year  as 
a  percentage  of  rise  or  falL  The  average  of 
these  percentages  for  each  year  represents, 
therefore,  average  prices  for  that  year,  as 
compared  with  1860,  and  it  is  these  averages 
which  are  platted  in  tlie  diagrams. 

The  list  of  commodities  selected  by  the 
Senate  Committee  embraces  223  articles  for 
the  years  subsequent  to  1860.  Prior  to  that 
time  the  number  was  less,  varying  from  85 
to  223,  according  as  data  were  to  be  had. 

Dr.  Soetbeer's  table  shows  prices  in  the 
port  of  Hamburg,  Germany,  of  100  com- 
modities, mostly  raw  materials,  joined  with 
the  export  prices  of  14  commodities  (manu- 
factures)  in  England,  from  1851  to  1891. 

Mr.  Sauerbeck's  table  shows  English  prices 
of  56  commodities  from  1846  to  1891. 

The  Economist  table  also  shows  Englisli 
prices  of  twenty-two  commodities  from  1860 
to  1892. 

The  discrepancies  between  these  different 
authorities,  as  shown  by  the  variations  in  the 


STABILITY   OF    GOLD  AND  SILVP:R   VALUES.      85 

lines  of  the  four  diagrams,  call  for  a  few  words 
of  explanation. 

It  would  naturally  be  expected  that  some 
differences  in  average  prices  would  exist  be- 
tween different  countries,  and  part  of  the  dis- 
crepancies may  be  accounted  for  in  this  way, 
since  there  are  included  in  all  the  tables,  among 
other  commodities,  such  as  wood  and  coal, 
of  wdiich  the  prices  might  vary  considerably 
in  different  countries  independently  of  one 
another. 

Several  changes  in  the  tariff  in  this  country 
during  the  last  fifty  years  would  account  for 
some  discrepancies  between  United  States 
prices  and  the  others.  Furthermore,  the 
method  by  which  these  tables  were  in  the  main 
prepared,  that  of  taking  simple  averages  of 
the  percentage  of  rise  or  fall  in  price,  thus 
giving  to  each  commodity  the  same  ^veight 
in  the  result,  regardless  of  its  importance  in 
commerce,  is  open  to  serious  objection,  and 
doubtless  accounts  for  many  of  the  discrep- 
ancies   that   exist.     For   example,  the    great 


86  HONEST    MONEY. 

rise  in  prices  during  the  period  of  our  civil 
war,  as  shown  in  the  Economist  and  the 
United  States  tables,  above  those  shown  in 
the  other  two  tables,  is  doubtless  due  to  the 
fact  that  in  the  Economist  table,  four  out  of 
the  twenty-two  commodities  in  the  list  are 
either  raw  cotton  or  cotton  manufactures,  and 
the  great  rise  in  price  of  cotton  during  the 
war  (a  rise  of  from  300  to  400  per  cent.)  is 
given  an  undue  importance  in  the  result.  The 
same  cause  may  affect  the  United  States  table, 
to  some  extent,  but  a  more  potent  factor  in 
this  table  is  the  circumstance  that  this  country, 
during  the  period,  was  using  an  inconvertible 
paper  money  in  which  all  prices  were  ex- 
pressed, while  gold  was  a  commodity  subject  to 
speculation,  and  the  price  of  which  was  much 
affected  thereby ;  and,  in  reducing  currency 
prices  to  gold  prices,  for  this  table  a  somewhat 
abnormal  result  is  produced. 

The  Economist  list,  it  must  be  said,  contains 
too  few  commodities  to  be  a  reliable  index  of 
all. 


STABILITY    OF   (lOLI)   AND    SILVER   VALUES.      87 

The  United  Statu.s  list  is  suiliciently  large, 
but  the  articles  selected  may  be  open  to  some 
criticism. 

The  lists  of  Mr.  Sauerbeck  and  Dr.  Soetbeer 
are  preferable,  but  all  are  open  to  the  objec- 
tion, above  noted,  of  not  giving  a  weight  to 
each  conimodit}'  in  pi'()[)orti()n  to  its  impor- 
tance, and  none  of  them  can  therefore  be 
regarded  as  anj^thing  but  approximations  to 
the  truth.  They  embrace,  however,  the  best 
information  on  the  subject  extant. 

The  United  States  Committee  did,  in  fact, 
endeavour  to  balance  their  own  list  in  accord- 
ance with  the  relative  importance  of  the  arti- 
cles in  another  table,  but  the  result  is  not 
wholly  satisfactory,  as  the  weighting  of  the 
averages  was  done  by  groups  of  articles  in- 
stead of  individually  for  each.  It  represents, 
however,  probably  the  most  accurate  informa- 
tion as  to  the  purchasing  power  of  gold  in 
this  country  from  1840  to  1892  that  can  be 
()])tained,  and  as  such  has  been  platted  in 
Plate  2,  in  a  reverse  form  ;  that  is,  assuming 


88  HONEST    MONEY. 

that  the  223  articles  of  the  list,  weighted 
according  to  their  importance,  fairly  repre- 
sent all  commodities,  and  that  therefore  their 
value  as  a  whole  is  constant  (since  the  values 
of  all  commodities  cannot  rise  or  fall  simulta- 
neously). The  diagram  shows  the  relative 
values  of  gold  for  the  different  years  as  a 
percentage  on  the  value  of  1860  taken  at 
100.  In  other  words,  it  shows  the  relative 
average  purchasing  power  of  gold  in  this 
country  in  the  different  years. 

With  these  explanations  of  the  diagrams, 
and  the  limitations  of  the  tables  from  which 
they  were  platted,  we  can  proceed  to  consider 
their  points  of  resemblance  and  what  they 
teach. 

It  is  evident  from  all  of  them  that  a  great 
decline  in  average  prices  has  been  going  on, 
almost  continuously,  since  1873,  in  the  various 
commercial  countries.  This  is  a  fact  conceded 
by  all  students  of  prices. 

What  is  equally  apparent,  however,  but 
does  not  seem  to  be  so  generally  appreciated, 


STABILITY    OF    GOLD   AND    SILVER    VALUES.       80 

is  the  violent  Uuctaation  in  prices,  or  in 
the  value  of  gold,  from  one  year  to  another, 
amounting  in  many  instances  to  from  5  to  10 
per  cent,  in  a  single  year,  and.  during  the  war, 
to  much  more.  Doubtless  if  the  tables  had 
shown  the  fluctuation  of  prices  by  months  or 
days,  instead  of  the  averages  for  each  year,  a 
much  greater  variation  in  the  value  of  gold 
would  have  been  apparent  at  times,  and  within 
a  shorter  period  than  a  year.  Furthermore, 
the  prices  of  staple  commodities  (and  most  of 
the  commodities  in  all  the  tables  are  staples), 
while  representing  correctly  the  character  of 
the  changes  in  price  of  all  commodities, 
would  naturally  not  vary  as  much  as  the 
prices  of  many  more  speculative  articles  of 
commerce.  It  is  probable,  therefore,  that  gold 
has  varied  in  value  to  a  greater  extent,  and 
within  shorter  periods,  than  is  shown  by  the 
diagrams. 

It  would  be  impossible  to  trace  all  the  vari- 
ous causes  that  have  produced  these  changes 
in  money  value,  but  a  few  of  the  more  promi- 


90  HONEST    MONEY. 

nent  ones  may  be  indicated  as  showing  their 
great  variety  and  force. 

From  1840  t'o  1849  a  great  decline  in  prices 
is  noticeable,  similar  to  the  decline  that  we 
know  has  been  going  on  in  the  last  twenty 
years.  This  is  doubtless  due  in  both  cases 
mainly  to  increasing  demand  for  money, 
caused  by  growing  population  and  expanding 
commerce,  and  which  the  supply  of  gold  and 
silver  or  substitutes  therefor  did  not  keep 
pace  with.  From  1850  to  1857  prices  gen- 
erally rose,  owing  to  the  increased  gold  pro- 
duction in  Australia  and  California,  aided 
doubtless  by  the  increased  use  of  credit  which 
rising  prices  always  stimulates.  The  collapse 
of  this  credit  in  the  panic  of  1857  sent 
prices  down  again.  The  slow  recovery  from 
this  condition  was  greatly  enhanced  by  the 
breaking  out  of  the  Civil  War,  during  which 
thousands  of  men  were  destroying  instead 
of  producing,  thus  raising  the  prices  of  nearly 
all  commodities  by  decreasing  the  supply  and 
increasing  the  demand  relative  to  gold,  while 


STABILITY   OF   GOLD    AXD    SILVER   VALUES.      91 

meantime  the  demand  for  gold  was  lessened 
by  the  use  of  paper  money  in  this  country. 
The  disbanding  of  the  armies  at  the  close  of 
the  war,  and  the  return  of  labour  to  produc- 
tive enterprises,  lowered  prices  rapidly  during 
1867,  1868,  and  1869.  From  this  depres- 
sion they  recovered  almost  as  rapidly  in  the 
era  of  development  from  1869  to  1872,  the 
large  production  of  silver  from  the  Nevada  and 
other  discoveries  during  that  period  assisting 
greatly  in  this  recovery,  and  the  usual  exten- 
sion of  credit  at  such  times  also  contributing. 
This  credit  collapsed  in  the  panic  of  1873, 
and  the  demonetization  of  silver  by  several 
European  nations  al)out  the  same  time  pre- 
vented any  increased  production  of  silver  from 
affecting  the  decline  which  then  set  in,  and 
which  has  with  one  or  two  reactions  been  con- 
tinuous ever  since. 

In  the  light  of  the  facts,  showm  by  these 
diagrams,  any  claim  for  even  approximate 
stability  of  value  for  gold,  or  for  the  money 
as  a  whole  on  the  gold  basis,  under  the  sys- 


92  HONEST    MONEY. 

terns  now  in  use,  is  preposterous.  Moreover, 
the  change  has  been,  of  late  years,  of  the 
worst  kind,  —  an  increase  of  money  value. 
If  it  were  steady,  its  effects  could  be  calcu- 
lated and  discounted  to  some  extent,  but 
caused,  as  it  is,  by  a  variety  of  forces  of  vary- 
ins;  streng;ths,  the  increase  is  at  some  times 
wholly  nullified,  or  even  turned  to  a  decrease, 
by  extensions  of  credit,  while  again  it  is 
doubled  in  effect  by  the  withdrawal  of  such 
credit. 

The  reason  for  this  great  decline  in  prices, 
or  the  increased  value  of  gold,  is  not  far  to 
seek  when  we  consider  the  relative  strengths 
of  the  forces  acting  on  gold  value.  Popula- 
tion, wealth,  and  diversity  of  occupations  have 
all  increased  greatly  over  the  whole  civilized 
world,  requiring  a  much  greater  amount  of 
money  to  do  the  business  of  the  world. 
There  has  been,  to  be  sure,  as  an  offset  to 
this,  a  considerable  increase  of  banking  facili- 
ties and  some  greater  use  of  credit  paper  in 
its  various  forms ;  but  all  these  were  in  large 


STABILITY    OF    GOLD    AND   SILVEK   VALUES.      93 

use  prior  to  1873,  Jiiid  their  increase  can 
hardly  have  been  so  great  as  to  meet  the 
demands  of  growing  commerce.  Furthermore, 
of  the  other  forces  tendiuL!;  to  raise  the  value 
of  gold,  the  annual  product  of  that  metal  lias 
not  increased  materially,  though  the  demand 
for  it  for  other  than  money  purposes  has 
mcreased  largel}-,  leaving  a  less  increment  to 
neutralize  the  waste  and  to  mcrease  the  sup- 
ply of  it.  And  lastly,  many  countries,  as  we 
have  seen,  about  the  year  1873  so  changed 
their  monetary  laws  as  to  use  a  much  greater 
amount  of  gold,  and  a  less  amount  of  silver 
or  paper.  The  United  States  alone,  it  is  esti- 
mated, now  uses  about  $600,000,000  of  gold 
coin,  while  in  1873  it  used  practically  none. 
The  effects  of  this  increase  in  the  value  of 
money  have  been  —  as  the  effects  of  falling- 
prices  always  are  —  detrimental  and  disas- 
trous in  all  gold-standard  countries,  to  an 
extent  that  cannot  be  measured.  Offset  at 
times  by  increased  use  of  credit,  enterprise 
and   industry   have    been   able    to   rise    to  a 


94  HONEST    MONEY. 

success  that  an  honest  money  would  make 
their  normal  condition,  only  to  be  dashed 
down  again  by  the  collapse  of  credit  with 
nothing  to  take  its  place. 

Silver-Standard  Prices. 

There  is  a  quite  prevalent  belief  that  the 
value  of  silver  has  fallen  greatly  since  1872. 
This  is  a  natural  sequence  to  the  belief  that 
gold  has  been  stable  in  value,  as  the  gold 
price  of  silver  has  declined  from  $1.32  per 
ounce  in  1872,  to  $0.82  per  ounce  in  1892 
(and  since  then  the  decline  has  been  much 
more).  This  fall  of  about  38  per  cent,  must 
be  deducted  from  the  rise  of  from  24  to  41 
per  cent,  (according  to  the  different  authori- 
ties) in  the  value  of  gold,  in  order  to  show 
the  true  change  in  the  value  or  purchasing 
power  of  silver.  It  is  evident,  therefore,  that 
the  value  of  silver  has  been  much  more  nearly 
constant  than  that  of  gold. 

This  is  confirmed  by  the  statement  of 
Mr.  David  A.  Wells,  in  his  work  on  "  Recent 


STABILITY    OF   GOLD  AND    SILVER  VALUES.      95 

Economic  Changes,"  p.  236.  There,  Mr. 
Wells  remarks :  — 

"  In  exclusiv'ely  silver-using  countries,  like 
India  and  Mexico,  the  decline  in  the  value  of 
silver  has  not  appreciably  affected  its  pur- 
chasing power  in  respect  to  all  domestic 
products  and  services  ;  but  the  silver  of  such 
countries  will  not  exchange  for  the  same 
amount  of  gold  as  formerly,  and  it  might  be 
supposed  that,  owing  to  this  change  in  the 
relative  value  of  the  two  metals,  the  silver 
of  India,  Mexico,  and  other  like  countries 
would  purchase  correspondingly  less  of  the 
commodities  of  foreisrn  countries  which  are 
produced  and  sold  on  a  gold  basis.  But  the 
people  of  such  countries  have  not  thus  far 
been  sensible  of  any  losses  to  themselves 
thereby  accruing,  for  the  reason  that  the  gold 
prices  of  such  foreign  commodities  as  they 
are  in  the  habit  of  buying  have  declined  in  a 
greater  ratio  since  1873  than  has  the  silver 
which  constitutes  their  standard  of  prices." 

He  also  says,  in  an   article  in   Tlie  Forum 


96  HONEST    MONEY. 

for  October,  1893  :  "  Testimony  was  given  to 
the  recent  British  Commission  on  Indian  cur- 
rency, that  within  the  last  twenty  years  half 
of  the  silver  prices  of  commodities  in  India 
have  risen  and  the  other  half  fallen." 

In  Plate  2,  the  dotted  line  shows  the  varia- 
tions in  the  value  of  silver  since  1872.  This 
diagram  is  platted  from  calculations  of  the 
percentage  of  decline  in  the  gold  price  of  sil- 
ver, taking  the  price  of  1872  as  100  (this 
was  also  practically  its  price  from  1840  to 
1872,  since  the  ratio  of  151  of  silver  to  1  of 
gold  was  maintained  within  narrow  limits 
during  that  time),  and  deducting  these  per- 
centages of  decline  from  the  percentage  of 
increase  in  gold  value. 

In  considering  the  relative  constancy  in  the 
value  of  gold  and  silver,  the  lines  represent- 
ing each  should  be  compared  with  the  level 
price  line  of  these  metals  in  1872.  It  will  be 
noted  that  while  silver  has  kept  closer  to  this 
line  than  has  gold,  and  on  the  average  has 
varied  but  little  from  it,  yet  the  fluctuations 


STABILITY    OF    GOLD   AND    SILVER   VALUKS.      07 

in  the  value  of  silver  from  year  to  year  are 
quite  as  marked  as  in  the  case  of  gold. 

It  will  also  be  noticed  that  prior  to  1872, 
under  a  bi-metallic  standard,  both  metals, 
while  maintaining  a  constant  relation  to  each 
other,  fluctuated  in  value  quite  as  extensively 
as  either  alone  has  done  since. 

The  facts  here  shown  as  to  the  experience 
of  this  and  other  countries  for  the  past  fifty 
years,  l^ear  out  the  theoretical  conclusions 
before  stated,  that  the  value  of  money,  under 
any  of  the  systems  that  have  been  used,  is 
subject  to  violent  fluctuations  from  year  to 
year,  due  to  a  great  variety  of  causes  which 
are  entirely  beyond  control,  and  that  neither 
silver  nor  gold  singly,  nor  both  combined, 
has  ever  proved  a  reliable  standard  of  value. 


CHAPTER   V. 

CRITICISM    OF    SOME    GOLD-STANDARD 
ARGUMENTS. 

Before  proceeding  with  the  main  line  of 
this  argument,  we  will  digress  to  notice  some 
of  the  argmiients  put  forth  in  support  of  the 
stability  of  the  value  of  gold  by  those  who 
cannot  but  recognize  the  great  fall  in  general 
prices. 

While  such  writers  do  not  deny  the  truth  of 
the  fundamental  principles  we  have  already 
considered,  they  either  forget  or  ignore  them. 

Notable  among  such  writers  is  Mr.  David 
A.  Wells,  and  as  his  views  may  be  taken  as 
representative  of  many  others,  some  state- 
ments from  his  article  in  The  Forum  for 
October,  1893,  previously  mentioned,  are  here 
selected  for  criticism. 

98 


GOLD-STANDARD    ARGUMENTS.  09 

In  the  beginning  of  that  article,  as  well  as 
in  his  work,  "  Recent  Economic  Changes,"  he 
clearly  recognizes  and  states  that  there  has 
been  a  great  and  universal  decline  in  the 
prices  of  a  variety  of  commodities  within  the 
last  thirty  years.  He  claims,  however,  that 
such  a  general  fall  of  prices  does  not  prove 
that  the  value  of  gold  has  increased,  for  the 
reason  that,  as  he  endeavours  to  show,  such 
fall  in  prices  was  caused  by  lowered  labour 
cost  of  production,  due  to  improved  machinery, 
better  methods,  greater  division  of  labour,  etc. 
All  these  facts  may  be  freely  admitted ;  the 
error  lies  in  supposing  that  it  makes  any 
difference  what  the  cause  is.  Since  value  is 
a  relation,  it  will  be  altered  by  a  change  in 
either  of  the  terms  between  which  that  rela- 
tion exists,  and  it  is  immaterial  whether  a 
day's  labour  produces  more  commodities  in 
general,  and  the  same  amount  of  gold,  or  a 
less  amount  of  gold,  and  the  same  amount  of 
commodities  in  general,  as  compared  with 
some  former  period.    The  value  of  gold,  other 


100  HONEST    :\IONEY. 

things  being  the  same,  is  greater  in  both  cases. 
The  fact  remains  that  if  gold  exchanges  for 
more  commodities  in  general  than  formerly, 
its  value  has  risen.  It  is  not  clear  what  Mr. 
Wells'  conception  of  value  is,  on  which  his 
arguments  are  based.  He,  however,  seems  to 
regard  the  labour  that  a  commodity  will  pur- 
chase as  the  measure  of  its  value,  since  he 
says,  in  the  magazine  article :  "  And  then,  in 
respect  to  the  one  thing  that  is  everywhere 
purchased  and  sold  for  money  to  a  greater 
extent  than  any  other,  namely  labour,  there 
can  be  no  question  that  its  price  measured 
in  gold  has  increased  in  a  marked  degree 
everywhere  in  the  civilized  world  during  the 
last  quarter  of  a  century." 

"  Measured  by  the  price  of  labour,  there- 
fore, gold  has  unquestionably  depreciated ; 
and  can  anybody  suggest  a  better  measure 
for  testing  the  issue  ? " 

The  fallacy  of  using  labour  in  any  form  as 
a  test  of  value  was  pointed  out  in  the  chapter 
on  value.     That  the  labour  a  commodity  will 


GOLD-STAN  I)  AKI)    ARGUMENTS.  101 

purchase  is  not  in  an}-  way  a  standard  (;f  value, 
as  between  two  different  periods,  has  been 
shown  by  ahnost  every  economist  from  Ricardo 
down  to  the  present  time. 

The  above  quotations,  in  connection  witli 
the  following  from  the  same  article,  bring 
to  light  an  important  phase  (jf  the  subject, 
which  it  may  be  well  to  make  clear.  Mr. 
Wells  remarks  :  — 

"  A  decline  in  prices,  by  reason  of  an  im- 
pairment of  the  ability  of  the  people  of  any 
country  to  purchase  and  consume,  through 
poverty  or  pestilence  or  by  reason  of  the  mis- 
application of  labour  and  capital,  i.e.  waste, 
...  is  certainly  an  evil.  But  a  decline  in 
prices  caused  by  greater  economy  and  effec- 
tiveness in  manufacture  and  greater  skill  and 
economy  in  distribution,  in  place  of  being  a 
calamity,  is  a  blessing  and  a  benefit  to  all 
mankind." 

With  growing  knowledge,  and  the  advance- 
ment of  the  arts  and  sciences,  there  is  a  con- 
tinual improvement  in  methods  of  production 


102  HONEST    MONEY. 

and  distribution,  enabling  the  same  amount 
of  labour  to  produce  and  distribute  to  con- 
sumers a  far  greater  amount  of  commodities 
in  general  than  it  formerly  could.  This  has 
been  conclusiv^ely  shown  in  detail  by  a  mass 
of  statistics  in  Mr.  Wells'  book.  The  question 
arises,  to  whom  should  this  increased  product 
properly  belong  ? 

For  the  purpose  of  this  inquiry  the  com- 
munity may  be  considered  as  divided  into 
three  separate  classes,  according  to  the  source 
from  which  their  principal  income  is  derived ; 
viz.  — 

(1)  Labourers, —  including  all  whose  income 
is  principally  derived  from  their  work,  of 
hand  or  brain,  whether  as  wages,  salaries,  or 
products  directly  created. 

(2)  Employers  of  labour,  —  including  all 
whose  income  is  mainly  derived  from  invest- 
ments of  capital  directly  in  productive  enter- 
prises in  the  widest  sense  of  the  term, — those 
who  take  the  risks  of  business  incident  to  the 
doing  of  the  work  of  the  community. 


GOLD-STANDAIID    ARGUMENTS.  103 

(3)  Money  lenders,  —  tliose  whose  income 
is  derived  from  interest  on  loans ;  who,  not 
wisliing  to  take  the  risks  and  cares  of  active 
business,  prefer  to  loan  their  capital  to  others 
who  will  do  so,  accepting  as  their  share  of 
the  profits  a  definite  amount  as  interest. 

The  incomes  of  many  people  are  derived, 
of  course,  from  all  three  of  these  sources,  but 
they  may  be  considered  as  lielonging  to  the 
class  determined  by  their  greatest  revenue. 

It  is  evident  that  labourers  should  have  a 
share  of  the  increased  product  that  greater 
skill,  improved  methods,  machinery,  etc., 
create ;  since  labour  is  the  direct  cause  of  such 
increase,  and  not  only  the  greater  skill  but 
the  improved  methods  are  due  to  labour. 

Equally  evident  is  it  that  the  capitalist 
who  has  taken  the  risks  of  business  and 
whose  wealth  and  enterprise  have  contributed 
to  the  results,  should  also  share  in  the  in- 
creased product. 

But  all  considerations  of  justice  and  equity 
forbid  that  those  who,  declining  to  take  any 


104  HONEST    MONEY. 

risk  themselves,  prefer  to  loan  their  capital  to 
others  at  a  fixed  compensation,  should  receive 
any  share  of  the  increased  product  which 
labourers  and  employers  may  succeed  in  creat- 
ing, beyond  such  fixed  compensation.  Justice 
is  satisfied  when  to  them  is  returned  the  value 
they  loaned  with  the  interest  agreed  upon  for 
its  use. 

It  must  not  be  forgotten  that  what  is 
really  loaned  is  capital,  —  commodities  in 
general,  —  not  money ;  the  money  is  only  a 
medium  for  effecting  the  transfer,  and  a 
measure  of  the  capital  transferred.  What 
should  be  returned,  therefore,  in  repayment 
of  a  loan  is  the  same  amount  of  commodities 
in  general  that  was  borrowed,  —  the  same 
value. 

It  is  not  meant  that  bond-holders  and 
money-lenders  should  be  entitled  to  no  share 
in  the  generally  bettered  condition  of  man- 
kind due  to  lowered  labour  cost  of  producing 
commodities.  They  should,  and  in  the  long 
run   would,  receive  their   full  share,  through 


GOLD-STAN  I)  A  lU)    ARGUMENTS.  105 

the  higher  rate  ol'  interest  that  increased 
general  })rofits  would  bring  if  money  value 
were  constant,  and  by  this  means  would  ob- 
tain a  jtoit  share,  determined  by  open  com- 
petition and  not  an  unjust  share,  determined 
by  the  insidious  device  of  a  varying  measure. 
It  is  meant,  however,  that  the  money-lender 
is  entitled  to  no  share  in  any  increased  pro- 
ductiveness of  labour  during  the  lifetime  of 
his  loan,  beyond  the  interest  stated.  He  gets 
his  share  of  such  increased  productiveness 
through  the  higher  interest  he  will  subse- 
quently receive  in  re-loaning  his  capital. 

If  prices  of  commodities  have  declined 
while  wages  have  increased,  as  Mr.  Wells 
claims,  it  shows  that  the  labourer,  on  the 
whole,  has  received  some  share  of  the  in- 
creased production,  since  his  wages  will  buy 
more  of  commodities  in  general  than  for- 
merly. Whether  the  employer  of  labour  has 
also  received  a  share  is  more  difficult  to  deter- 
mine ;  but  it  is  absolutely  certain,  if  prices 
have    fallen,  that    the    money-lender,  who  is 


106  HONEST    MONEY. 

entitled  to  no  share  at  all,  aside  from  inter- 
est, has  also  received  a  share,  and  a  very 
large  one  in  many  cases  ;  since  the  money 
returned  to  him  in  discharge  of  a  debt  will 
purchase  a  much  larger  amount  of  commod- 
ities in  general  than  it  would  when  it  was 
loaned ;  and  this  share  has  evidently  been 
drawn  from  what  should  have  gone  to  one 
or  both  of  the  other  classes,  and  they  are 
wronged  to  that  extent. 

While  the  labourer  may,  or  may  not,  have 
received  the  share  to  which  he  was  entitled 
during  the  last  twenty  years^  it  seems  highly 
probable,  from  Mr.  Wells'  statistics  and  argu- 
ments, that  it  is  the  employer  of  labour  — 
who  as  a  rule  is  the  borrower  —  who  has 
been  injured  most  by  the  fall  of  prices. 

One  of  the  great  aims  and  endeavours  of 
mankind  is  to  produce  the  largest  amount  of 
commodities  possible,  with  the  least  labour,  — 
or  to  lower  the  labour  cost  of  commodities. 
It  is  this  lowered  labour  cost,  which  is  "a 
blessing    and    benefit    to    all    mankind,"  not 


GOLD-ST.iNDAKD    AKGUMENT.S.  107 

lowered  prices.  The  two  are  not  the  same, 
nor  have  they  any  real  connection.  Lowered 
labour  cost  depends  solely  on  the  improvement 
in  skill,  methods,  machinery,  etc.,  which  Avill 
go  on  as  well  with  prices  constant  on  the 
average,  as  with  falling  prices,  —  in  fact,  even 
better, —  and  the  product  will  then  be  dis- 
tributed honestly;  while  with  falling  prices 
the  distribution  is  dishonest. 

It  is  important  to  keep  clearly  in  mind  the 
distinction  between  capital  and  money.  That 
Mr.  Wells  has  not  always  done  so,  tlie  fol- 
lowing quotation  will  show  :  — 

'''  Nobody,  furthermore,  has  ever  yet  risen 
to  explain  the  motive  which  has  impelled  the 
sellers  of  merchandise  all  over  the  world, 
during  the  last  thirty  years,  to  take  lower 
prices  for  their  goods  in  tlie  face  of  an  unex- 
ampled aljundance  of  capital  and  low  rate  of 
interest,  except  upon  the  issue  of  the  struggle 
between  supply  and  demand." 

Capital  is  accumulated  wealth  devoted  to 
the    production    of   more    wealth ;    money   is 


108  HONEST    MONEY. 

merely  a  medium  for  the  exchange  and  trans- 
fer of  wealth :  they  are  not  synonymous 
terms.  An  abundance  of  capital  may  exist 
with  a  small  amount  of  money  (relative  to 
the  demand)  and  consequent  low  prices,  or 
with  a  large  amount  of  money  and  high 
prices  :  they  have  no  connection. 

The  rate  of  interest,  also,  has  nothing  to  do 
with  the  question.  Interest  is  determined  by 
the  amount  of  capital  seeking  investment  in 
loans,  relative  to  the  demand,  and  in  a  time 
of  relative  contraction  of  the  volume  of 
money,  and  consequent  falling  prices,  will, 
as  a  rule,  be  low,  since  there  is  less  induce- 
ment for  men  to  borrow  capital  to  engage  in 
business,  and  more  men  wishing  to  lend.  The 
risks  of  business  are  much  increased  at  such 
a  tune,  and  the  profits  much  lessened,  and  as 
the  rate  of  interest  is  determined  by  the 
profits  of  business  in  general,  it  will  be  low 
also.  Mr.  Wells,  indeed,  has  recognized  this 
fact  elsewhere  in  his  writings,  but  has  evi- 
dently forgotten  it  in  the  above  quotation. 


GOLD-STANDARD    ARGUMENTS.  109 

The  accuinulation  of  money  in  banks  in 
times  of  depression  indicates  not  too  much 
money,  but  a  general  belief  that  its  value  is 
rising,  or  a  fear  that  it  will  rise  ;  testifying, 
if  to  anything,  to  too  little  money,  in  fact. 
Men  do  not  hold  a  thing;  that  brinars  no 
income  unless  they  expect  to  profit  by  its  rise. 

As  to  the  main  point  of  the  above  quota- 
tion, certainly  men  accept  lower  prices  for 
merchandise  because  of  the  issue  between  sup- 
ply and  demand,  but  the  supply  of  money  is 
as  much  involved  in  the  calculation  as  the 
supply  of  merchandise.  Men  accept  lower 
prices  —  that  is  less  gold  —  for  commodities  in 
general,  because  gold  has  increased  in  value. 
Mr.  Wells  further  says  :  — 

"  No  one  has  ever  named  a  single  com- 
modity that  has  notably  declhied  in  price 
within  the  last  thirty  years,  and  satisfactorily 
proved,  or  even  attempted  to  prove,  that  its 
decline  was  due  to  the  appreciation  of  gold." 

No  one,  of  course,  could  prove  by  the  de- 
cline   in    price    of    a    single    commodity    that 


110  HONEST    MONEY. 

money  or  gold  had  appreciated ;  but  when  a 
writer  admits,  as  Mr.  Wells  has  done  so 
clearly,  that  prices  in  general  have  fallen, 
no  proof  is  needed  ;  the  statements  are  but 
different  ways  of  saying  the  same  thing. 

That  in  order  to  establish  the  appreciation 
of  money  it  is  necessary  to  show  that  all  com- 
modities have  fallen  in  price,  or  that  the  price 
experiences  of  different  commodities  had  har- 
monized in  their  decline,  as  Mr.  Wells  implies, 
is  manifestly  absurd.  Even  if  average  prices 
were  constant,  there  would  be  continual  fluc- 
tuations of  individual  prices,  some  rising, 
others  falling,  and  these  continue  the  same 
with  an  increasing  money  value,  so  that  some 
prices  might  not  alter  at  all,  or  might  rise 
even  with  a  rising  money  value,  but  others 
again  would  decline  in  a  greater  degree  than 
if  the  money  value  were  constant.  If  the 
average  purchasing  power  of  money  is  greater, 
then  its  value  is  greater,  whatever  be  the 
cause. 

So  much  space  has  been  devoted  to  a  criti- 


GOLD-STANDARD    ARGUMENTS.  Ill 

cism  of  this  article  because  the  opinions  ex- 
pressed in  it  seem  to  be  fundamental  and 
dangerous  errors.  Moreover,  they  are  given 
added  weight  by  the  reputation  and  promi- 
nence of  the  author,  while  they  are  more  or 
less  representative  of  the  arguments  of  other 
defenders  of  the  gold  standard. 

Either  Mr.  Wells  is  mistaken  in  his  con- 
ception of  value,  and  of  the  standard  by  which 
it  is  measured,  or  Ricardo,  John  Stuart  Mill, 
and  all  other  authorities  on  Political  Economy 
are  mistaken  in  supposing  that  the  value  of 
a  commodity  is  its  general  purchasing  power. 


CHAPTER  VI. 

FOEEIGN    COMMERCE. 

It  is  claimed  by  many  writers  that  inter- 
national trade  is  carried  on  upon  a  gold  basis, 
and  that  it  is  necessary,  therefore,  if  a  country 
is  to  maintain  and  increase  such  trade,  that  it 
should  have  its  money  based  upon  gold,  since 
its  "  balance  of  trade"  must  be  paid  in  gold. 

The  idea  of  foreign  trade  involved  in  such 
statements  is  a  relic  of  the  old  "  mercantile 
theory  "  that  the  great  object  of  any  country 
was  to  export  as  much  as  possible  of  its  prod- 
ucts and  receive  in  return  the  largest  possible 
amount  of  gold  and  silver,  —  to  get  gold,  in 
fact,  at  any  hazard.  This  theory  was  buried, 
a  century  ago,  under  the  weight  of  Adam 
Smith's  arguments,  and  every  economist  since 

112 


FOREIGN    COMMERCE.  1  13 

then  has  helped  to  biuy  it  deeper ;  but  its 
ghost  still  stalks  and  appears  now  and  again 
in  the  form  of  such  statements  as  the  above, 
and  in  the  common  expressions  "  the  balance 
of  trade  is  against  the  country,"  or  ''  the 
balance  of  trade  is  in  favour  of  the  country," 
meaning  that  gold  is  being  exported  or  im- 
ported, and  implying  that  the  one  is  an  injury 
or  the  other  a  benefit  to  the  country. 

From  a  mercantile  point  of  view,  there  is 
some  justification  for  these  expressions,  and 
for  the  satisfaction  felt  at  a  condition  of 
things  requiring  the  import  of  gold.  As  be- 
fore stated,  the  value  of  gold  is  inversely  as 
general  prices  in  gold-standard  countries,  and 
the  import  of  gold  means  a  lowering  of  its 
value  and  a  general  rise  of  prices,  —  which, 
of  course,  is  what  merchants  like  to  have  hap- 
pen; and  the  export  of  gold  means  a  fall  in 
prices,  —  Avhicli  they  dread. 

Under  a  monetary  system  which  maintained 
prices  constant,  on  the  average,  the  export  or 
import  of  gold  would  be  of  no  more  impor- 


114  HONEST    MONEY. 

tance  than  the  export  or  import  of  corn  or 
silk. 

From  an  economic  standpoint  the  term  hal- 
ance  of  trade  is  a  misnomer,  and  is  mislead- 
ing. Equally  misleading  and  erroneous  is 
the  idea  that  gold  or  silver  is  in  any  way 
necessary  to  foreign  commerce,  or  that  in 
consequence  of  a  money  being  based  on  one 
of  these  metals  such  trade  will  be  in  any 
way  enhanced. 

International  trade  is  an  exchange  of  com- 
modities ;  not,  to  be  sure,  a  direct  barter,  but 
an  indirect  one.  One  country  exports  those 
commodities  which  it  can  produce  the  cheap- 
est, in  exchange  for  those  of  other  countries 
that  are  either  not  produced  at  all  in  the  first 
country,  or  can  be  produced  only  at  a  greater 
cost  than  by  import.  The  immediate  force 
impelling  to  the  export  and  import  of  com- 
modities is,  in  all  cases,  a  difference  in  their 
values  in  the  two  countries.  This  is  no  less 
true  of  gold  than  of  other  commodities,  for 
gold  will  never  move  from  one  country  to  an- 


FOREIGN    COMMERCE.  115 

other  except  it  be  of  lower  value  in  the  export- 
ing than  in  the  ini[)oiting  country,  no  matter 
how  much  the  one  may  be  owing  the  other. 
The  expressions  "  balance  of  trade  in  favour 
of,"  or  "against  a  conntry,"  means  only  that 
gold  is  at  that  time  of  higher  value  in  one 
than  in  another  country,  by  an  amount  above 
the  cost  of  shipment,  and  is  being  exported  or 
imported  because  there  is  a  profit  in  so  doing ; 
but  this  furnishes  no  criterion  whatever  of 
the  prosperity  of  a  country.  It  frequently 
happens  that  gold  moves  for  a  considerable 
time  from  one  country  to  another  because 
of  large  production  of  gold  in  the  exporting 
country.  That  cannot  be  considered  a  bad 
condition  of  business  or  unfortunate  for  the 
exporting  country,  unless  the  commodities 
received  in  exchange  are  useless,  or  are  wasted. 
At  other  times  it  frequently  happens  that  a 
country  is  importing  gold,  giving  in  exchange 
not  only  other  commodities,  but  promises  to 
pay  back  the  value  received,  in  the  shape  of 
bonds  and  stocks  —  running  in  debt,  in  fact. 


116  HONEST    MONEY. 

This  may  be  a  good  or  a  bad  thing  for  the 
country,  as  for  an  individual,  according  as  the 
vakie  received  is  profitably  used  or  not.  It 
certainly  is  no  sure  indication  of  real  pros- 
perity. 

The  operations  of  foreign  trade  create  a 
great  number  of  claims  and  obligations  on 
the  part  of  citizens  of  one  country  against, 
as  well  as  in  favour  of,  the  citizens  of  all 
others.  These  claims  consist  of  drafts,  bills 
of  exchange,  letters  of  credit,  etc.,  and  are 
expressed  in  every  kind  of  money  that  exists, 
whether  based  on  gold  or  silver,  or  simply 
inconvertible  paper.  Through  the  medium  of 
foreign  exchange  banks  these  claims  are  offset 
against  each  other  and  cancelled.  Between 
two  countries  having  the  same  monetary 
standard  there  exists  what  is  called  the  par 
of  exchange ;  that  is,  the  ratio  between  the 
weights  of  gold  or  silver  in  their  respective 
units.  The  actual  rate  of  exchange  —  that 
is,  the  price  which  will  be  paid  in  one  money 
for  claims  expressed  in  another  —  seldom  con- 


FOREIGN    COMMERCE.  I  1  / 

forms  to  tlii.s  nominal  par.  The  bills  of  ex- 
change, etc.,  representing  claims  of  the  export- 
ers of  one  country  against  the  importers  of 
another  may  be  regarded  as  a  sort  of  commod- 
ity, and  subject  to  the  law  of  supply  and 
demand.  If  one  country,  A.,  has  more  claims 
against  another,  B.,  than  B.  has  against  A., 
then  the  demand  will  be  stronger  for  those 
which  are  fewer,  and  the  price  will  rise,  and 
vice  versa. 

The  prices  of  exchange  cannot  vary  from 
the  par  of  exchange  between  gold-standard 
countries  much  more  than  the  cost  of  ship- 
ment of  gold  ;  for  if  they  do,  it  will  become 
profitable  to  export  or  import  gold,  and  this 
will  create  new  claims  balancing  the  others. 
The  variation  of  exchange  rates  within  these 
limits  is  quite  sufficient,  however,  to  cause  the 
actual  exchange  rate,  and  not  the  nominal 
one,  to  be  reckoned  on  by  those  engaged  in 
foreign  trade. 

There  exists,  and  always  has  existed,  an 
actual  exchange  rate  between  the  money  units 


118  HONEST    MONEY. 

of  all  countries,  or  between  the  claims  ex- 
pressed therein,  no  matter  what  the  money 
was  based  on  ;  although  there  cannot  be  a  par 
of  exchange  except  between  moneys  based  on 
the  same  metal.  These  actual  rates  are  con- 
tinually varying,  even  between  countries  like 
England  and  Australia,  which  not  only  use  the 
same  standard,  but  a  common  unit,  and  there 
is,  therefore,  no  difference  in  the  practical 
working  of  exchange  between  countries  hav- 
ing the  same  standard  and  those  having 
different  ones. 

The  inference  to  be  drawn  from  these  facts 
and  theories  is,  that  it  would  make  no  differ- 
ence in  the  foreign  trade  of  any  country  if  it 
did  not  possess  an  ounce  of  gold  or  of  silver, 
or  whether  its  money  was  based  on  gold  or 
was  inconvertible  paper  ;  if  the  country  pro- 
duces commodities  that  other  countries  want, 
and  wants  some  that  other  countries  produce, 
the  commerce  will  continue. 

If  the  money  of  either  country  is  fluctuating 
in  value,  relative  to  the  other,  to  any  great 


FOREIGN    COMMERCE.  119 

extent,  it  may  introduce  some  uncertainty 
that  will  hamper  and  inconvenience  trade, — 
though  to  a  less  extent  than  a  variable  money 
would  in  its  own  country,  as  there  are  means 
by  which  such  fluctuations  can  be  guarded 
against ;  but  unless  the  changes  are  sudden 
and  violent,  no  inconvenience  will  be  experi- 
enced, as  the  actual  exchange  rates  are  more 
or  less  always  fluctuating. 

In  support  of  these  statements,  and  as 
showing  that  they  are  borne  out  by  practical 
experience,  the  following  quotations  are  given 
from  Mr.  Wells'  "Recent  Economic  Changes," 
in  reference  to  trade  between  a  silver  and  a 
gold  standard  country  when  the  relative  val- 
ues of  the  tw^o  metals  were  changing  quite 
rapidly.     He  says,  p.  239  :  — 

"Mr.  Lord,  a  director  of  the  Manchester 
(England)  Chamber  of  Commerce,  testified  be- 
fore the  Commission  on  the  Depression  of 
Trade,  in  1886,  that  'So  far  as  India  was 
concerned,  it  is  not  necessary  to  run  any  risk 
at  all    from    the   uncertainties  of    exchange.' 


120  HONEST    MONEY. 

Mr.  Blythell  (representing  the  Bombay 
Chtamber  of  Commerce)  testified  before  the 
same  commission,  .  .  .  '  There  is  no  difficulty 
in  negotiating  any  transaction  for  shipping 
goods  to  India  and  in  securing  exchange.' 

Mr.  Wells  says :  "  Thus  from  returns  offi- 
cially presented  to  the  British  Gold  and  Silver 
Commission,  1886,  it  was  established  that 
the  trade  of  Great  Britain  with  India  since 
1874  had  relatively  grown  faster  than  with 
any  foreign  country  '  except  the  United  States 
and  perhaps  Holland.'  "  He  also  says,  of 
Mexican  exchange,  p.  241  :  "  The  fluctuations 
in  the  price  of  silver  since  1873  —  Mexican 
exchanoe  having;  varied  in  New  York  in 
recent  years  from  114  to  140  —  would  seem, 
necessarily,  to  have  been  a  disturbing  factor 
of  no  little  importance  in  the  trade  between 
United  States  and  Mexico ;  but  the  official 
statistics  of  the  trade  between  the  two  coun- 
tries since  1873  (notoriously  undervalued)  fail 
to  show  that  any  serious  interruption  has 
occurred." 


FOREIGN    COMMERCE.  121 

During  this  period,  Mexico  had  a  silver 
standard,  wliile  the  United  States  had  incon- 
vertible paper  for  nearly  six  years  of  it,  and 
a  gold  standard  for  the  remaining  period. 

Mr.  Wells  further  states  :  — 

"  In  forming  any  opinion  in  respect  to  this 
problem,  it  is  important  to  steadily  keep  in 
mind  the  fact  that  international  trade  is  trade 
in  commodities  and  not  in  money ;  and  that 
the  precious  metals  come  in  only  for  the  set- 
tlement of  balances.  .  .  .  The  trade  between 
England  and  India  is  an  exchange  of  service 
for  service.  Its  character  would  not  be 
altered  if  India  should  adopt  the  gold  stan- 
dard to-morrow,  or  if  she  should,  like  Russia, 
adopt  an  irredeemable  paper  currency,  or,  like 
China,  buy  and  sell  by  weight  instead  of  tale. 
.  .  .  Unless  all  the  postulates  of  political 
economy  are  false  —  unless  we  are  entirely 
mistaken  in  supposing  that  men  in  their 
individual  capacity,  and  hence  in  their  aggre- 
gate capacity  as  nations,  are  seeking  the  most 
satisfaction  with  the  least   labour,  we    must 


122  HONEST    MONEY. 

assume  that  India,  England,  and  America  pro- 
duce and  sell  their  goods  to  one  another  for 
the  most  they  can  get  in  other  goods,  regard- 
less of  the  kind  of  money  that  their  neigh- 
bours use  or  that  they  themselves  use." 

From  the  time  of  the  Civil  War  until  1879, 
this  country,  though  nominally  on  a  gold  and 
silver  basis,  was  actually  using  a  depreciated 
paper  money.  No  serious  inconvenience  was 
experienced  in  our  foreign  trade  during  the 
greater  part  of  this  time  ;  when  the  currency 
was  most  fluctuating,  it  doubtless  did  disturb 
all  business,  both  foreign  and  domestic,  but 
this  was  due  to  its  great  and  sudden  changes, 
and  may  be  regarded  as  abnormal,  and  un- 
likely under  a  proper  system  again  to  occur. 

Walter  Bagehot,  in  his  work,  ''  A  Universal 
Money,"  observes :  — 

"  If  France  and  America  had  the  same  cur- 
rencies as  England,  it  would  still  happen, 
as  now,  that  bills  on  Paris  or  New  York 
would  be  at  a  discount  or  a  premium.  The 
amount   of   money    wishing  to    go    eastward 


FOKEIGN    COMMERCE.  123 

across  the  Atlantic,  and  the  amount  wishing 
to  go  westward,  would  then,  as  now,  settle 
how  much  was  to  be  paid  in  London  for  bills 
on  New  York,  and  how  much  was  to  be  paid 
in  New  York  for  bills  on  London." 

It  must  be  evident  that  if  the  people  of  one 
country  have  incurred  debts  to  the  people  of 
another  country  expressed  in  foreign  mone- 
tary units,  nothing  but  such  foreign  money 
will  satisfy  the  claim,  and  to  procure  it  the 
debtors  must  ship  some  commodity  in  ex- 
change for  it.  What  this  commodity  will  be, 
will  depend  on  which  is  the  cheapest  —  which 
one  the  debtor,  everything  considered,  will 
have  to  give  the  least  of  in  exchange  for 
the  necessary  foreign  money,  —  it  may  be 
claims  against  foreign  merchants,  or  bankers, 
in  the  shape  of  drafts  or  bills  of  exchange,  or 
it  may  be  gold,  if  that  is  cheaper,  or  it  may 
be  wheat,  or  cotton,  or  any  other  commodity, 
but  it  will  always  be  that  which  the  debtor 
can  purchase  cheapest.  If  it  be  gold,  it  will 
be  because  the  debtor  can    purchase    enough 


124  HONEST    MONEY. 

gold  to  exchange  for  the  required  amount  of 
foreign  money  for  less  of  his  own  money 
(including  transportation  and  other  charges) 
than  he  can  purchase  a  sufficient  amount  of 
any  other  commodity,  and  not  because  the 
foreign  money  is  based  on  gold.  In  short,  the 
gold  differs  in  no  way  from  any  other  com- 
modity in  such  transactions ;  it  is  exchanged 
for  the  foreign  money,  which  alone  can  satisfy 
the  debt,  precisely  as  any  other  commodity. 

That  both  gold  and  silver  may  be  a  con- 
venience at  times  in  international  trade  is  not 
denied  ;  but  they  are  not  a  necessity,  and  their 
convenience  for  this  purpose  is  in  no  way 
enhanced  by  their  coinage  or  by  their  use  as 
a  domestic  money. 


CHAPTER   VII. 

MONEY    IN    THE    UNITED    STATES. 

Turning  from  the  consideration  of  money 
systems  in  general  to  the  particular  case  pre- 
sented in  our  own  country,  we  find  a  most 
curious  system  —  if,  indeed,  anything  bearing 
so  little  evidence  of  rational  adaptation  to  its 
purpose  is  entitled  to  that  name. 

The  unit  of  the  system  is  the  gold  dollar, 
containing  25.8  grains  of  standard  gold,  nine- 
tentlis  line,  coined  in  hve,  ten,  and  twenty 
dollar  pieces.  There  is  also  a  silver  dollar, 
containing  412|  grains  of  standard  silver, 
nine-tenths  fine,  the  ratio  between  the  two 
being  15.988  grains  of  silver  to  one  of  gold. 

The  gold  is  coined  free,  in  any  amount  pre- 
sented.   The  silver  coinage  has  been  restricted 


126 


126  HONEST    MONEY. 

for  many  years,  and  is  now  entirely  stopped. 
The  silver  dollar,  however,  circulates  at  par 
with  gold,  though  its  bullion  value  is  only 
about  fifty  cents  measured  in  gold,  which  is 
the  real  basis  of  the  system. 

In  addition  to  the  coin,  and  circulating  on 
a  par  with  it,  are  a  number  and  variety  of 
issues  of  paper  money. 

(1)  United  States  notes  (or  greenbacks), — 
secured  only  by  the  credit  of  the  government, 
except  that  there  is  held  in  the  Treasury 
about  30  per  cent,  of  the  amount  of  these 
notes  in  gold  as  a  redemption  fund. 

(2)  National  bank-notes,  —  issued  nomi- 
nally by  the  various  national  banks  of  the 
country,  but  practically  issued  by  the  govern- 
ment ;  since  they  are  secured  by  a  deposit  of 
government  bonds,  are  guaranteed  by  the 
government,  and  rest  as  completely  on  the 
credit  of  the  government  as  the  greenbacks 
do,  though  in  a  different  way. 

(3)  Silver  certificates,  —  secured  by  a  de- 
posit of  silver  bullion. 


MONEY    IN    THE    UNITED    STATES.         127 

(4)  Gold  certificates, —  secured  by  a  like 
deposit  of  gold. 

(5)  Treasury  notes, —  secured  by  deposits 
of  silver. 

(6)  Currency  certificates. 

All  of  these  kinds  of  paper  money,  as  well 
as  the  silver  coin,  circulate  on  a  par  with 
gold ;  their  utilities  being  equal,  and  the 
demand  for  money  being  an  indiscriminate 
one,  their  values  nnist  be  equal.  As  a  domes- 
tic money,  gold  cannot  have  a  liigher  value 
than  the  issues  of  paper  money ;  though  it 
may,  however,  have  a  greater  value  as  a  com- 
modity for  foreign  shipment.  It  is  not  the 
fact  that  these  other  forms  of  money  may  be 
exchanged  directly  or  indirectl}'  for  gold  at 
the  United  States  Treasury  that  makes  their 
values  equal  to  gold  value,  but  the  fact  that 
their  utilities  are  equal.  They  would  remain 
of  equal  value  with  gold  if  the  Treasury  did 
not  exchange  gold  for  them,  so  long  as  any 
gold  remained  in  circulation  as  money.  A 
gold  reserve,  however,  is  necessary  as  a  pre- 


128  HONEST    MONET. 

caution  in  a  gold-standard  system,  but  only  to 
the  extent  of  the  probable  demand  for  gold 
for  export. 

The  system  as  a  whole  is  a  ridiculous  one, 
and  nearly  all  its  features  are  wasteful  and 
uneconomic. 

Gold  coin,  as  a  circulating  medium,  is  not 
as  good  as  paper ;  it  has  a  high  subjective 
value,  and  such  use  of  it  is  wasteful ;  it  should 
be  kept  as  a  reserve  for  export  purposes. 
The  gold  certificates  are  better,  but  are  also 
wasteful;  since  only  a  sufficient  reserve  is 
needed  to  meet  possible  demands  for  export, 
and  this  would  be  far  less  than  dollar  for 
dollar. 

The  silver  coin  is  open  to  the  same  objec- 
tion as  the  gold  coin  as  a  circulating  medium, 
and  the  silver  certificates  to  the  same  objec- 
tion as  the  gold  certificates,  and  to  the  further 
objection  that  the  silver  deposited  to  secure 
them  is  of  no  use  whatever,  even  as  a  reserve, 
for  no  one  would  demand  silver  bullion  of  the 
government  in  exchange  for  paper  money  at 


MONEY    IN    THE    UNITED    STATES.         129 

the  present  coinage  value,  when  they  coukl 
purchase  nearly  twice  as  much  in  the  open 
market  for  the  same  money.  Unless,  then, 
our  money  should  fall  in  value  some  50 
per  cent.,  not  an  ounce  of  silver  will  ever  be 
called  for  at  the  Treasury  in  exchange  for 
the  paper  issues  based  thereon;  and  the  sil- 
ver deposits  are  merely  a  clumsy  and  costly 
method  of  limiting  the  volume  of  the  paper 
money. 

The  greenbacks,  or  United  States  notes, 
are  economical,  and  if  they  were  variable  in 
volume  and  under  proper  control  would  be  a 
good  money. 

The  national  bank-notes  are  wrong  in 
principle,  in  allowing  private  corporations 
to  make  a  profit  from  the  issuance  of  paper 
mone}^  This  objection  is  of  no  practical 
importance,  at  present,  as  the  restrictions 
and  high  Ijond  prices  have  taken  away  prac- 
tically all  the  •  profit  to  the  banks  on  the 
issues,  but  in  so  doing  have  also  taken  away 
about  the  only  merit  such   notes  ever  had, 


130  HONEST    MONEY. 

that  of  elasticity  of  volume  to  some  extent. 
This  was  a  most  doubtful  merit  at  best,  as 
the  issues  were  governed  by  considerations  of 
private  profit  and  not  by  any  desire  to  make 
money  of  stable  value.  Whatever  may  have 
been  the  merits  of  the  national  banking 
system  in  the  past,  the  war  necessities  of  the 
government  which  gave  birth  to  it,  have 
long  since  passed  away.  It  can  be  viewed 
now  only  in  the  light  of  its  present  useful- 
ness, and  as  an  issuer  of  money  it  is  of  no 
use  whatever. 

Paper  money  received  by  deposit  of  bonds 
instead  of  bullion  is  economical  and  correct 
in  principle,  if  controlled  in  the  interests  of 
the  public,  and  not  left  at  the  mercy  of  men 
whose  private  interests  may  be  opposed  to 
the  public  welfare.  No  such  control  of  the 
volume  of  the  money  is  attempted  in  the  case 
of  the  national  bank-notes,  and  they  are  no 
more  secure  than  are  greenbacks,  since  the 
ultimate  foundation  of  both  is  the  national 
credit  in  one  form  or  another. 


MONEY    IN    THE    UNITED    STATES.         131 

Of  all  our  different  kinds  of  money,  the 
only  ones  susceptible  of  change  in  volume 
to  meet  the  varying  demands  of  commerce 
are,  under  existing  laws,  the  gold  com  and 
certificates.  These  can  be  changed  only  by 
the  import  or  export  of  gold,  or  by  the  prod- 
uct of  the  mines  over  and  above  the  amount 
needed  for  the  arts  and  sciences,  and  which 
must  be  divided  with  other  gold-standard 
countries. 

The  national  bank-notes  are  theoretically 
elastic  in  volume,  but  actually  are  not  so,  to 
any  appreciable  extent.  They  require  for 
their  issue  the  purchase  and  deposit  with 
the  United  States  Treasurer  of  government 
bonds,  —  now  at  a  large  premium,  —  are 
subject  to  other  charges  and  restrictions,  and 
are  not,  as  a  rule,  profitable  enough  to  the 
banks  to  cause  any  increase  of  the  issues 
above  that  required  by  law,  except  in  urgent 
necessity,  and  that  to  a  very  limited  extent. 

As  a  result  of  these  conditions,  the  country 
witnessed,  during  the  recent  panic  of    1893, 


132  HONEST    MONEY. 

a  resort  to  every  kind  of  device  known  to 
banking  and  permissible  by  law,  to  increase 
the  volume  of  the  currency  and  meet  the 
enhanced  demand  for  money  caused  by  the 
utter  failure  of  credit.  Certified  checks,  cer- 
tificates of  deposit,  clearing-house  certificates, 
and  other  devices  were  resorted  to,  and  even 
then  thousands  of  solvent  institutions  over 
the  country  were  obliged  to  close  their  doors, 
and  the  industry  of  the  whole  country  was 
paralyzed. 

The  events  are  of  too  recent  occurrence  to 
need  rehearsal  here.  It  is  a  sad  commentary 
on  the  wisdom  of  our  legislators  that,  not- 
withstanding all  the  tinkering  and  patching 
that  our  financial  system  has  undergone,  and 
the  voluminous  debates  in  and  out  of  Congress 
for  years  past,  the  volume  of  our  money  has 
been  so  far  from  keeping  pace  with  the 
demands  of  commerce  that  prices  have  been 
falling  for  a  quarter  of  a  century,  culminat- 
ing last  year  —  a  repetition,  unhappily,  of 
previous    experience  —  in    a    collapse    of    the 


MONEY    IN    THE    UNITED    STATES.        133 

overstrcained  credit  that  was  vainly  trying 
to  do  the  work  of  money,  and  bringing  ruin 
and  disaster  to  thousands. 

The  condition  of  our  monetary  laws  to-day 
is  such  that,  except  by  the  slow  increment 
of  gold  })roduction,  which  must  be  shared 
by  all  the  world,  we  possess  no  means  of 
meeting  either  the  increasing  demand  for 
money  that  expanding  population  and  com- 
merce bring,  or  the  sudden  demand  that  a 
failure  of  credit  may  bring  at  any  time.  This, 
obviously,  is  a  blunder  on  the  part  of  our 
law-makers  that  amounts  to  a  crime. 

It  is  not  surprising  that  under  such  condi- 
tions the  industries  of  the  country  are  crip- 
pled and  that  thousands  of  men  should  seek 
work  in  vain.  Still  less  surprising  is  it  that 
in  the  face  of  a  continually  increasing  value 
of  money,  or  decreasing  prices  of  nearly  every- 
thing else,  prudent  men  choose,  as  far  as  possi- 
ble, to  turn  their  capital  into  money,  lock  it 
up  in  safe  deposit  vaults,  or  let  it  lie  idle  in 
banks,  rather  than  take  the  great  risk  that 


134  HONEST    MONEY. 

any  active  use  of  capital  under  such  circum- 
stances carries  with  it.  When  money  is 
increasing  in  purchasing  power  from  five 
to  seven,  and  even  a  higher  per  cent,  per 
annum,  as  has  been  shown  to  be  the  case 
many  times  in  the  past,  it  means  that  the 
man  who  locks  his  money  up  in  a  vault 
gets  that  percentage  of  return  for  letting  it 
lie  idle  ;  or  that  the  man  who  loans  it,  even 
at  a  low  rate  of  interest,  —  if  a  loan  with 
safe  security  can  be  found  at  such  a  juncture, 
—  makes  the  five  to  seven  per  cent,  resulting 
from  the  increased  value,  in  addition  to  what 
he  gets  as  interest. 

Men  cannot  be  blamed  for  declining  to 
engage  in  productive  enterprises  under  such 
conditions,  nor  for  hoarding  money  instead 
of  using  it ;  the  blame  lies  on  the  system 
that  not  only  permits  but  compels  such 
action. 

There  is  evidently  no  inducement  for  men 
with  money  to  invest  it  in  any  productive 
business   with  the   certainty,  under   existing 


MONEY  IN  THE  UNITED  STATES.    135 

conditions,  that  the  record  of  the  past  will 
be  that  also  of  the  future,  and  that  if  a  re- 
turn of  confidence  again  expands  credit  and 
stimulates  business  to  a  new  activity,  it  is 
sure  to  be  followed,  at  no  distant  day,  by 
another  collapse. 

It  must  Ije  conceded,  with  these  considera- 
tions in  mind,  that  the  imperative  need  of 
this  country  is  for  a  money  that  shall  be  at 
once  more  honest,  more  simple,  and  more 
elastic,  and,  at  the  same  time,  adaptable  to 
the  varying  demands  of  commerce. 

Any  change  in  a  money  system  must,  of 
necessity,  cause  some  disturbance  of  business, 
and  such  change  should  be  so  devised  as  to 
cause  the  least  possible  disturbance,  and  do 
as  little  injury  to  vested  interests  and  exist- 
ing obligations  as  possible. 

The  system  chosen  should,  moreover,  be 
adapted  not  only  to  the  needs  of  the  present, 
but  also  to  the  possible  requirements  of  the 
future,  so  that  no  change  of  system  will  after- 
wards be  called  for  to  meet  further  changes  in 


136  HONEST    MONEY. 

demand,  and  cause  again  a  disturbance  of 
commerce.  In  sliort,  it  should  be  a  system 
logical,  economical,  scientific,  and  permanent, 
—  not  a  makeshift,  to  be  changed  in  the 
next  Congress  by  the  addition  of  another 
makeshift,  in  the  manner  in  which  our  pres- 
ent crazy  patchwork  of  money  has  been 
created  and  maintained. 


CHAPTER  VIII. 

SOME    PROPOSED    CHANGES    IN     OUR    MONEY 
SYSTEM. 

Of  the  many  plans  that  have  been  proposed 
to  correct  the  evils  of  our  existing  money 
system,  it  is  not  necessary  to  notice  here  more 
than  two  or  three.  Most  of  the  others  are 
more  or  less  temporary  expedients  which,  even 
if  meritorious,  fall  so  far  short  of  an  adequate 
or  permanent  solution  of  the  problem  as  to 
merit  little  attention. 

The  change  which  has  been  most  urgently 
advocated  is  a  return  to  the  free  coinage  of 
silver. 

It  is  not  proposed  to  enter  into  any  extended 
discussion  of  the  merits  or  demerits  of  this 
proposition.  Much  has  been  written  on  the 
subject   already,    most   of    it,    unfortunately, 

137 


138  HONEST    MONEY. 

from  a  partisan  standpoint,  and  ignoring  all 
facts  and  principles,  however  well  established, 
which  did  not  agree  with  the  views  advocated. 
This,  it  may  be  said,  is  equally  true  of  both 
sides  to  the  controversy.  It  seems  desirable, 
therefore,  to  point  out  how  the  principles 
we  have  already  investigated  apply  to  the 
question. 

Those  who  advocate  free  coinage  of  silver 
claim  that  the  value  of  gold  has  increased 
since  free  silver  coinage  was  stopped,  while 
the  value  of  silver  has  remained  more  nearly 
constant.  This  claim,  as  we  have  seen,  is 
correct.  They  claim  not  to  desire  to  sub- 
stitute silver  for  gold  in  the  coinage,  but  to 
use  both  together  at  the  ratio  of  15.988  to  1, 
under  a  bi-metallic  system,  increasing  the 
volume  of  money,  and  thereby  raising  prices 
to  a  higher  level. 

Their  opponents  say  that  free  silver  coinage 
will  drive  gold  out  of  the  country  and  the 
value  of  our  standard  will  at  once  fall  to  the 
present  bullion  value  of  silver  (about  50  to  60 


PROPOSED  CHANGES  IN  MONEY  SYSTEM.  139 

cents,  measured  in  gold),a,nd  that  bi-metallism 
is  only  practical^le  by  agreement  between  the 
leading  nations. 

That  free  coinage  of  silver  would  result  in 
driving  gold  from  the  country  has  been 
largely  denied  by  the  advocates  of  that 
measure.  In  this  denial  they  make  a  great 
mistake,  not  only  because  the  statement  is 
strictly  true,  as  theory  and  experience  in 
the  past  have  alike  shown,  but  also  because 
it  would  accomplish  what  they  are  aiming  at, 
and  is  the  only  w^ay  in  which  it  can  be  accom- 
plished through  silver  coinage.  The  increase 
in  the  volume  of  money  here  would  raise  prices, 
and  the  flow  of  gold  to  other  countries  would 
raise  their  prices  also,  and  thus  a  general  rise 
of  prices  and  a  lowering  of  the  value  of  gold, 
would  result. 

The  gold-standard  advocates  have  also 
made  an  error  in  supposing  that  free  silver 
coinage  would  result  in  the  immediate  fall  of 
our  standard  to  the  present  bullion  value  of 
the  silver  dollar. 


140  HONEST    MONEY. 

It  would  be  rather  difficult  to  trace  the 
hnmediate  effects  of  such  a  measure,  as  sev- 
eral conflicting  forces  would  be  brought  into 
play,  the  relative  strengths  of  which  could  not 
be  foretold.  It  seems  probable,  however,  that 
the  first  effect  would  be  a  large  rise  in  the 
price  of  silver  bullion,  and  a  hoarding  of  gold, 
followed  by  its  export  in  exchange  for  silver. 
For  a  time  this  would  cause  a  fall  in  prices  of 
other  commodities,  followed  by  a  rise,  as  the 
new  coinage  began  to  fill  the  place  of  the  gold 
hoarded  and  exported.  However  this  might 
]je,  it  can  hardly  be  doubted  that  the  final 
result  would  be  a  rise  in  prices  of  commod- 
ities—  including  silver — as  measured  in  gold, 
or  a  fall  in  the  value  of  gold  all  over  the 
world  as  measured  by  commodities.  Our 
money  would  probably  remain  at  a  slight 
depreciation  below  our  gold  standard,  while 
both  together  would  gradually  lower.  This 
condition  would  be  made  manifest  by  grad- 
ually increasing  prices,  and  would  continue 
either  until  all  the   available  gold  had  been 


PROPOSED  CHANGES  IN  MONEY  SYSTEM.   141 

exported,  or  until  the  rising  value  of  silver 
met  the  falling  value  of  gold  at  the  coinage 
ratio  of  15.98  to  1.  Whichever  of  these 
results  took  place  would  depend  on  the  rela- 
tive amounts  of  gold  available  for  export  and 
of  silver  for  import,  and  could  hardly  be  fore- 
told. It  seems  more  than  likely,  however,  that 
the  gold  would  all  be  exported.  In  this  case, 
the  country  would  have  the  silver  standard, 
and  the  value  of  the  dollar  would  be  some- 
what lower  than  the  value  of  a  gold  dollar 
then,  and  considerably  lower  than  the  value 
of  a  gold  dollar  now,  but  also  considerably 
higher  than  the  bullion  value  of  the  silver 
dollar  is  now. 

If  the  two  dollars  reached  a  parity  at  their 
coinage  ratio  before  all  the  gold  was  ex- 
ported, the  country  would  have  not  only  a 
bi-metallic  standard,  but  would  practically 
force  such  a  standard  on  the  rest  of  the 
world,  as  long  at  least  as  the  gold  supply 
held  out.  If  foreign  nations  returned  also  to 
the  free  coinage  of  silver,  they  would  either 


142  HONEST    MONEY. 

have  to  change  their  ratio  to  agree  with  ours, 
or,  if  they  kept  their  present  ratio  of  15i  to 
1,  the  silver  would  gradually  leave  us  in  ex- 
change for  their  gold. 

The  fear  of  a  sudden  fall  in  the  value  of 
the  dollar,  as  a  result  of  free  silver  coinage, 
is  not  justified.  The  value  of  the  dollar 
would  fall  gradually  as  the  volume  of  the 
money  increased,  —  as  would  be  made  mani- 
fest by  gradually  rising  prices,  —  except  that 
this  fall  would  be  more  or  less  counteracted 
at  the  start  by  a  hoarding  of  gold,  which 
would  decrease  the  supply  of  money,  and 
perhaps  by  a  disturbance  of  credit,  which 
would  increase  the  demand  for  it.  The  first 
effects  might  be,  therefore,  an  increase  in- 
stead of  a  decrease  of  money  value. 

It  would  probably  not  make  so  very  much 
difference  whether  bi-metallism  or  the  single 
silver  standard  was  the  final  result.  The 
value  of  the  dollar  would  not  be  greatly 
different  in  the  two  cases.  Before  we  reached 
a  silver  basis  we  would  have  exported  some 


PROPOSED  CHANGES  IN  MONEY  SYSTEM.  143 

five  or  six  hundred  millions  of  gold,  and 
bought  its  equivalent  in  silver,  securities,  and 
commodities,  and  the  result  would  necessa- 
rily be  a  great  advance  in  the  value  of  sil- 
ver, and  a  corresponding  fall  in  the  value 
of  gold,  —  the  reverse,  in  fact,  of  what 
happened  when  Germany  and  other  nations 
changed  from  a  silver  to  a  gold  basis. 
Whether,  therefore,  this  country  were  able 
or  not  to  restore  the  parity  of  the  two 
metals  at  the  present  coinage  ratio,  the  de- 
parture from  such  parity  would  not  be 
nearly  so  great  as  it  now  is.  Provided  that 
the  volume  of  the  uncovered  paper  money 
remained  the  same  as  now,  and  that,  when 
the  change  was  finally  accomplished,  credit 
were  used  to  the  same  extent  as  before,  the 
value  of  the  dollar  would  be  somewhere 
between  the  present  bullion  values  of  the 
gold  and  silver  dollars,  and  jDrobably  nearly 
as  high  if  the  result  were  the  single  silver 
standard  as  it  would  be  if  bi-metallism  were 
accomplished. 


144  HONEST    MONEY. 

The  merits  and  demerits  of  the  plan  may 
be  summed  up  as  follows  :  — 

The  change  would  necessarily  cause  a  great 
disturbance  of  business,  which  might  result,  at 
first,  in  a  lowering  of  prices,  but  would  event- 
ually result  in  a  gradual  but  considerable  in- 
crease of  general  prices,  and  a  stimulation  of 
industry. 

Debtors  would  be  benefited  considerably, 
and  creditors  wronged  considerably,  especially 
in  short-time  obligations  ;  though  the  long- 
time ones — those  that  had  run  for  a  number 
of  years  —  would  not  be  affected  so  much. 

Once  established,  the  money  value  would 
probably  be  less  variable  than  gold  has  been, 
and  rather  more  variable  than  silver  has  been 
in  the  past,  but  this  could  not  be  said  with  cer- 
tainty, as  the  money  value  would  continue  to 
be  the  result  of  a  variety  of  forces,  of  which 
no  one  could  predict  or  control  the  strength. 

The  inconvenience  of  so  bulky  a  metal  in 
large  amounts  would  almost  necessitate  its  de- 
posit in  vaults  and  the  issue  of  paper  money 


PROPOSED    CHANGES    IN    MONEY    SYSTEM.      145 

in  its  place  for  actual  circulation.  If  this 
paper  were  issued  only  to  the  amount  of  the 
silver  deposited,  it  would  be  a  most  uneco- 
nomical system,  since  the  greater  part  of  the 
silver  might  evidently  just  as  well  be  in  tlie 
ground  from  which  it  was  dug,  so  far  as  any 
real  use  was  concerned.  If  paper  were 
issued  in  excess  of  the  silver  deposited,  it 
would  not  make  a  market  for  very  much  more 
silver  than  we  now  use,  and  the  value  of  sil- 
ver would  be  raised  but  little. 

The  value  of  the  money  would  therefore 
depend  largely  on  the  use  that  was  made  of 
paper  in  connection  with  it.  Without  some 
control  of  the  volume  of  the  money  besides 
the  control  the  supply  of  silver  would  give,  its 
value  would  continue  to  fluctuate  at  all  times, 
and  greatly  so  in  times  of  panic,  as  it  always 
has  done.  With  proper  control  the  silver  is 
wholly  unnecessary,  as  its  only  use  is  to  limit 
the  volume  of  the  money,  and  this  can  be 
done  far  more  cheaply  and  efficiently  in  other 
ways. 


146  HONEST    MONEY. 

Little  need  be  said  of  the  "Greenback"  or 
fiat  money  proposals,  so  prominent  some  years 
ago,  though  they  are  seldom  advocated  now. 
Their  only  merit  was  a  dim  perception  of  the 
fact  that  gold  and  silver  are  not  necessary  to 
a  money  system.  Their  errors  were  that  they 
failed  to  provide  any  standard  by  which  money 
value  could  be  tested,  or  any  control  had  of 
its  volume.  They  also  failed  to  recognize  the 
fact  that  money  value  is  wholly  dependent 
on  money  volume. 

Various  plans  have  been  proposed  for 
changing  our  money  system  by  increasing 
the  issues  of  bank-notes.  One  of  these  plans 
is  to  repeal  the  present  prohibitory  tax  on 
State  bank-notes,  which  would,  of  course, 
result  in  the  issue  of  such  notes  to  any  extent 
that  was  profitable. 

Several  other  plans  propose  to  increase  the 
issue  of  national  bank-notes  by  removing 
some  of  the  present  restrictions,  and  allowing 
the  banks  to  pledge  other  securities  than 
United  States  bonds  as  a  guarantee  of  their 


PROPOSED  CHANGES  IN  MONEY  SYSTEM.   147 

circulation,  or   by  allowing   their  capital   to 
serve,  in  part,  as  such  guarantee. 

All  of  these  plans  are  merely  makeshifts, 
and  merit  little  attention.  Considered,  how- 
ever, onl}'  as  makeshifts,  and  with  reference 
solelj^  to  tlie  claims  they  advance,  they  are  of 
no  permanent  benefit  to  the  public.  They  only 
allow  the  banks  to  make  a  profit  that  should 
go  to  the  community.  It  is  claimed  that  the 
money  volume  will  be  made  more  elastic  by 
these  issues.  This  claim  does  not  appear  to 
be  justified  by  an  analysis  of  most  of  them, 
and,  so  far  as  it  holds  good  in  any  of 
them,  it  is  a  most  dangerous  feature.  If  the 
issues  are  made  profitable  to  the  banks, — 
and  otherwise  there  would,  of  course,  be  no 
issues,  as  they  are  not  compulsory,  —  then 
the  banks  would  undoubtedly  increase  them 
to  the  full  limit  allowed  by  law  at  any  time. 
If  they  were  limited  so  as  to  be  profitable 
only  when  interest  rates  were  high,  then, 
when  times  were  prosperous,  prices  rising,  and 
profits  large,  the  interest  rate  would  be  high. 


148  HONEST    MONEY. 

and  the  increased  issues  would  enhance  the 
'"  boom."  When,  however,  the  inevitable 
reaction  came,  and  prices  began  to  fall,  and 
credit  to  be  withdrawn, —  the  time,  most  of 
all,  when  more  money  would  be  needed,  —  the 
banks  would  not  only  be  helpless  to  increase 
their  issues,  but  would  very  likely  reduce  them, 
because  of  the  increased  risk  at  such  times, 
and  the  fact  that,  in  times  of  depression  and 
declining  prices,  interest  rates  are  apt  to  be 
low  also. 

Elasticity  of  volume  is  a  most  necessary 
feature  of  a  money  system,  when  it  is  rigidly 
controlled,  to  make  money  value  constant;  but 
it  would  be  a  most  dangerous  feature  when 
the  control  was  governed  by  the  desire  only 
to  make  the  most  profit.  It  would  simply 
result  in  a  greater  fluctuation  of  money  value 
than  there  is  now. 

We  have,  so  far,  examined  these  various 
plans  for  amending  our  faulty  money  system 
rather  in  regard  to  the  truth  of  their  pretences 
than   in   regard    to   the   requirements  of   an 


PROPOSED  CHANGES  IN  MONEY  SYSTEM.   149 

honest  money.  In  this  latter  respect,  all  the 
plans  ignore  the  necessity  for  an  invariable 
standard  of  value,  and  provide  no  method  for 
controlling  the  volume  of  money,  and  adjust- 
ing it  to  the  demand,  as  might  be  done,  to 
some  extent,  even  with  the  gold  standard. 
The  general  decline  of  prices  could  not  be  pre- 
vented, though  some  of  the  fluctuations  might. 
The  fact  must  be  faced,  that  any  attempt 
to  increase  the  volume  of  money  m  this  coun- 
try, and  thereby  raise  our  prices  above  those 
of  other  countries,  or  to  maintain  our  prices 
in  gold  constant,  while  those  of  other  countries 
are  declining,  can  result  only  in  the  export  of 
gold.  This  might  not  happen  at  once,  for  it 
takes  time  for  Gresham's  law  to  operate,  but 
it  would  Ije  inevitable.  It  would  probably  be 
delayed  somewhat  by  foreign  speculation  in 
our  securities,  —  always  a  powerful  factor  in 
determining  the  value  of  our  money,  —  but 
it  would  come ;  and  the  resulting  depression 
would  be  all  the  greater  for  the  delay  and 
the  height  of  the  prosperity  that  preceded  it. 


150  HONEST    MONEY. 

So  long  as  our  money  is  based  on  a  metal 
that  forms  a  part  of  the  money  of  other  coun- 
tries, under  a  free  coinage  system,  so  long 
will  the  value  of  our  money  fluctuate  under 
the  influence  of  foreign  monetary  legislation, 
wars,  panics,  and  a  hundred  forces  beyond 
our  control. 

Only  by  divorcing  our  money  from  that  of 
other  countries  can  we  control  it,  and  only  by 
controlling  it  can  it  be  made  honest  money. 


CHAPTER   IX. 

A   NEW   MONETARY    SYSTEM. 

In  the  development  of  commerce  from 
simple  barter  between  savages  up  to  its  pres- 
ent complicated  form  and  enormous  volume, 
an  evolution  is  apparent,  similar  in  character 
to  that  which  has  taken  place  in  the  organic 
world.  In  l)oth  the  change  has  been  from 
the  simple  and  homogeneous  to  the  complex 
and  heterogeneous.  In  both  it  has  been  a 
differentiation  of  the  functions  of  the  several 
parts,  accompanied  by  an  increased  sensitive- 
ness of  the  whole. 

The  primitive  form  of  commerce,  direct 
barter,  may  be  compared  to  one  of  the  low- 
est forms  of  animal  life,  in  which  all  parts 
are  alike  mouth  and  stomach,  and  which    if 

151 


162  HONEST    MONEY. 

cut  into  pieces,  will  exist,  severally,  as  a  com- 
plete animal ;  while  modern  commerce,  with 
its  various  parts,  each  with  a  separate  func- 
tion, and  its  highly  sensitive  organism,  is  more 
like  a  human  being,  in  which  each  part  is 
adapted  to  the  work  it  has  to  perform  and 
is  dependent  on  all  the  others,  so  that  the 
failure  of  any  one  to  do  its  work  cripples  all 
the  rest. 

Just  as  the  cutting  or  maiming  of  a  low 
form  of  animal  life  is  of  little  damage  to  it, 
while  a  far  less  injury,  relatively,  would  kill  or 
seriously  maim  a  man,  so  an  injury  to  com- 
merce, that  in  a  primitive  form  would  amount 
to  little,  in  our  modern  highly  developed  sys- 
tem would  cripple  it  greatly.  Money  is  one 
of  the  most  important  parts  of  our  industrial 
system,  —  the  very  life-blood,  in  fact,  —  and 
if,  for  any  reason,  it  fails  to  perform  its  func- 
tions fully  and  completely,  the  consequences 
are  far  more  disastrous  than  they  would  have 
been  under  the  more  primitive  systems  of 
the  past. 


A    NEW    >[ONETARY    SYSTEM.  153 

Alono;  witli  the  evolution  of  commerce  in 
general  has  gone  an  evolution  of  money  and 
the  mechanism  of  exchange.  As  the  volume 
of  traffic  grew  larger,  the  use  of  the  bulkier 
commodities  as  money  was  gradually  aban- 
doned for  the  more  valuable  metals.  In  time, 
even  these  became  too  bulky  and  inconvenient 
for  use  as  a  medium  of  exchange,  and  credit, 
in  its  various  forms,  now  does  the  work  of 
money,  as  to  this  function,  to  a  far  greater 
extent  than  money  itself  does,  and  even  the 
money  itself  is  mostly  a  paper  money, — a 
sort  of  certified  credit. 

As  previously  stated,  about  95  per  cent  of 
the  bank  deposits  are  in  forms  of  credit,  and 
of  the  actual  money  deposits  only  about  one- 
tenth  is  gold,  the  balance  being  paper  money 
and  silver ;  so  that,  on  the  strength  of  these 
estimates,  only  .6  per  cent  of  the  exchanges 
of  commodities  are  effected  through  the  direct 
use  of  gold. 

This  evolution  of  money,  however,  has  been 
almost  wholly  confined  to  the  one  function,  a 


154  HONEST    MONEY. 

medium  of  exchange ;  there  has  been  no  ad- 
vance for  centuries  in  regard  to  the  other 
function,  a  measure  of  vakie.  Men  have  con- 
tinued to  cling  to  the  fiction  that  gold  was  a 
standard  of  value,  and  that,  so  long  as  their 
monetary  system  was  based  on  that  metal, 
their  unit  was  of  invariable  value.  We  have 
seen  how  little  ground  there  is  for  this  claim ; 
that  a  gold  basis  for  our  money  is  not  neces- 
sary to  our  foreign  commerce ;  and  how 
small  a  part  gold  really  plays  in  domestic 
commerce  as  a  medium  of  exchange.  Is  it 
not  about  time,  then,  to  abandon  the  fiction 
that  gold  is  either  a  standard  of  value  or  a 
medium  of  exchange,  in  any  proper  sense 
of  the  terms,  and  to  take  a  forward  step  in 
the  evolution  of  money  by  adopting  a  more 
scientific  standard  of  value,  and  making 
the  money,  as  a  measure  of  value,  conform 
thereto  ? 

Professor  Jevons,  in  "  Money  and  the  Mech- 
anism of  Exchange,"  in  the  chapter  on  "A 
Tabular  Standard  of  Value,"  inquires  whether 


A    NEW    MONETARY    SYSTEM.  155 

it  is  not  possible  to  have  a  standard  based 
on  a  large  number  of  commodities,  —  a  -  mid- 
tiple  legal  tender,"  as  he  terms  it,  —  and  con- 
cludes that  the  plan  would  resolve  itself  into 
those  severally  proposed  by  Joseph  Lowe  in 
1822,  and,  independently,  by  G.  Poulett  Scrope 
in  1833,  and  by  G.  R.  Porter  in  1838.  These 
plans  were  practically  alike.  Recognizing  the 
fluctuations  of  money  value,  and  the  injury 
done  especially  to  long-time  debts  thereby, 
they  proposed  that  tables  be  prepared  showing 
the  variations  from  year  to  year  of  the  prices 
of  the  principal  commodities,  taking  into 
account,  also,  the  amounts  sold.  These  tables 
were  to  be  used  for  reference,  to  ascertain  in 
what  degree  a  mone}'  contract  must  be  varied 
so  as  to  make  the  purchasing  power  of  the 
money  returned  equal  to  that  loaned.  The 
plans  seem  to  have  been  only  suggestions,  and 
the  details  not  worked  out.  Professor  Jevons 
speaks  favourably  of  them,  as  perfectly  sound 
in  principle,  and  the  difficulties  in  the  way  as 
not  considerable.     He  suggests  a  method  by 


156  HONEST    MONEY. 

which  the  average  prices  of  the  commodities 
could  be  computed,  and  closes  with  the  state- 
ment :  "  Such  a  standard  would  add  a  wholly 
new  degree  of  stability  to  social  relations,  se- 
curing the  fixed  incomes  of  individuals  and 
public  institutions  from  the  depreciation  which 
they  have  often  suffered.  Speculation,  too, 
based  upon  the  frequent  oscillations  of  prices 
which  take  place  in  the  present  state  of  com- 
merce, would  be  to  a  certain  extent  discouraged. 
The  calculations  of  merchants  would  be  less 
frequently  frustrated  by  causes  beyond  their 
own  control,  and  many  bankruptcies  would  be 
prevented.  Periodical  collapses  of  credit  would 
no  doubt  recur  from  time  to  time,  but  the 
intensity  of  the  crisis  would  be  mitigated, 
because,  as  prices  fell,  the  liabilities  of  debtors 
would  decrease  approximately  in  the  same 
ratio." 

Prof.  F.  A.  Walker,  referring  to  these 
schemes,  and  to  similar  ones  proposed  by  Count 
Soden  and  by  Professor  Roscher  in  Germany, 
criticises  them  as  too  cumbersome  for  general 


A    NEW    MONETARY    SYSTEM.  157 

use,  but  thinks  they  might  be  advantageously 
employed  for  long-time  contracts.  The  criti- 
cism is  evidently  just ;  not  only  are  the  plans 
too  cumbersome,  but  they  only  partially  accom- 
plish what  is  needed.  The}' contain,  however, 
the  germ  of  a  plan  \vhicli  it  is  believed  would 
be  both  more  el'fective  and  less  open  to  the 
criticism  mentioned.  Long  and  short  time 
contracts,  and  cash  transactions,  are  too  inti- 
mately connected  to  make  it  possible  in  prac- 
tice to  use  different  and  varying  standards  for 
each. 

Since  the  values  of  all  commodities  consti- 
tute the  only  true  standard  of  value,  as  close 
an  approximation  to  this  standard  as  possible 
should  be  adopted  as  our  standard  of  value. 

Since  the  value  of  the  circulating  medium  — 
the  money  —  depends  on  supply  and  demand, 
the  suppl}'  should  be  so  controlled  that  the 
value  of  the  money  would  always  correspond 
with  that  of  the  standard  adopted,  and  since 
paper  money  is  the  cheapest,  the  most  con- 
venient, and    the    only    money   entirely    free 


158  HONEST    MONEY. 

from  outside  influences  affecting  its  volume 
and  value,  our  currency  should  be  a  paper 
money. 

The  following  is  given  as  the  outline  of 
a  plan  embodying  these  features  and  re- 
quirements. 

The  Standard  of  Value. 

Let  a  commission  be  appointed  by  Con- 
gress to  select  a  sufficient  number  of  com- 
modities, say,  one  hundred,  to  be  used  as  a 
standard  of  value. 

This  selection  should  comprise  the  com- 
modities most  largely  bought  and  sold  and 
most  independent  of  each  other  in  their 
values ;  preference  should  be  given  to  those 
which  are  products  of  this  country,  —  but 
foreign  products  should  also  be  included, — 
and  to  those  which  are  reliable  in  quality 
and  of  which  the  prices  are  regularly  quoted 
—  such,  for  instance,  as  wheat,  corn,  oats, 
rye,  barley,  cotton,  wool,  tobacco,  rice,  gold, 
silver,  lead,    copper,    tin,    iron,   steel,    cotton 


A    NEW    MONETARY    SYSTEM.  loO 

and  woollen  cloths,  leather,  hides,  luml)er  of 
various  kinds,  sugar,  beef,  pork,  mutton,  etc. 

The  aim  should  be,  while  not  including 
all  commodities,  which  would  of  course  be 
impossible,  to  include  a  sufficient  number 
and  of  such  varied  kinds  as  to  fairly  repre- 
sent all.  Less  than  a  hundred  mii'-ht  be 
sufficient,  or  it  might  be  better  to  take  more 
than  that  number. 

"With  the  aid  of  statisticians,  the  average 
price  of  each  of  the  commodities  selected, 
in  their  principal  markets  for  a  few  years 
past,  should  be  ascertained  and  tabulated. 
The  commodities,  of  course,  should  be  of 
specified  grade  and  quality,  and  in  a  spec- 
ified market,  but  not  necessarily  the  same 
market   for   all. 

The  length  of  time  over  which  the 
average  of  prices  should  extend  would  be 
determined  as  closely  as  possible  by  the 
averao;e  lengrth  of  time  that  existing:  in- 
debtedness  had  run.  (The  reason  for  this 
will     be     explained    later.)     In    addition    to 


160  HONEST    MONEY. 

the  average  prices  of  each  commodity,  the 
approximate  amount  or  vahie  annually  con- 
sumed in  this  country,  should  be  ascertained. 

From  these  data,  a  table  should  be  pre- 
pared showing  the  amount  one  dollar  would 
have  purchased,  on  the  average,  of  each  of 
the  commodities  for  the  time  determined, 
and  from  this  a  final  table  should  be  made 
taking  such  multiples  of  the  amounts  found 
in  the  previous  table  as  should  represent  their 
proportionate  consumption,  —  in  other  words, 
their  relative  importance  in  trade. 

For  example,  suppose  the  time  selected  were 
five  years,  as  representing  twice  the  average 
time  existing  debts  had  run ;  that  during 
that  time  one  dollar  would  have  bought,  on 
the  average,  1.25  bushels  of  Avheat,  or  3  bush- 
els of  corn,  or  100  pounds  of  pig  iron,  or  10 
pounds  of  cotton,  all  of  specified  grade  in  spec- 
ified markets  ;  that,  further,  the  importance 
of  each  of  these  commodities  in  the  trade  of 
this  country  was  in  the  approximate  pro- 
portions of  5,  3,  2,  and  1,  respectively. 


A    NEW    MONETARY    SYSTEM.  161 

Then  the  final  ta])lo  would  show :  — 

5  X      l.LT)  =     6.25  bushels  of  wheat  =  ^5.00 

3  X      .">       =      0       bushels  of  corn    =  8.00 

2  X  100       =  200       lbs.  of  pig  iron     =  2.00 

1  X    10       =    10       lbs.  of  cotton         =  1.00 


Total,  f  11.00 

Considering  these  four  commodities  only, 
the  dollar,  as  the  unit  and  standard  of  value 
of  our  system,  would  be  defined  by  law  as 
one-eleventh  of  the  sum  of  the  values  of  6.25 
bushels  of  wheat,  9  bushels  of  corn,  200  pounds 
of  pig  iron,  and  10  pounds  of  cotton.  This 
illustrates  the  method  of  arriving  at,  and  the 
definition  of,  the  standard.  Extended  to  all 
the  commodities  selected,  the  definition  would 
be  the  same  with  the  substitution  of  the  proper 
figures. 

This  would  evidently  provide  a  standard 
that  would  closely  represent  the  average  pur- 
chasing power  of  one  dollar  for  the  time  se- 
lected. As  to  the  length  of  time  over  which 
this  average  should  extend,  if  there  were  no 
such  thing  as  existing  debts,  it  would  clearly 


162  HONEST    MONEY. 

be  of  little  importance  what  the  value  of  the 
unit  selected  was,  just  as  it  would  be  of  no 
importance  now  whether  the  foot  or  the  pound 
had  been  originally  fixed  at  greater  or  less 
than  their  present  length  and  weight ;  but 
because  of  the  vast  amount  of  existing  in- 
debtedness, the  value  of  the  unit  that  is  to 
be  made  permanent  should  be  most  carefully 
fixed  at  the  value  it  had  when  such  indebted- 
ness was  created,  so  as  to  do  as  little  violence 
as  possible  to  outstanding  obligations.  The 
fact  that  in  the  past  the  debtors  have  been 
wronged  to  the  advantage  of  creditors,  by 
an  increasing  value  of  money,  furnishes  no 
excuse  for  a  reversal  of  this  injustice  and 
a  wronging  of  creditors  by  permanently  fix- 
ing the  value  of  the  dollar  at  what  it  was 
twenty  or  thirty  years  ago.  The  debtors  and 
creditors  of  to-day  are  not  the  same  indi- 
viduals who  stood  in  those  relations  at  any 
time  in  the  past,  and  two  wrongs  do  not 
make  a  right. 

The   object  should  be,  therefore,  to  deter- 


A    NEW    MONETARY    SYSTEM.  163 

mine  as  closely  as  possible  how  many  years, 
on  the  average,  existing  debts  have  run,  and 
take  twice  that  period  for  the  total  length 
of  time  over  which  our  prices  should  be  deter- 
mined. The  average  of  the  prices  would  then 
correspond  witli  what  it  was  when  average 
debts  were  incurred. 

This  would  doubtless  work  a  slight  injus- 
tice to  those  whose  debts  were  of  longer 
standing,  —  though  a  less  injustice  than  they 
are  subject  to  now,  —  and  would  be  a  slight 
injustice  to  the  creditors  of  more  recent 
date ;  but  as  some  time  would  be  occupied 
in  getting  the  system  to  work,  so  that 
the  actual  value  of  the  money  would  corre- 
spond with  the  standard,  the  injustice  would 
be  more  or  less  distributed,  and  would  at 
most  be  slio-ht.  It  would  be  substitutins: 
only  a  gradual  rise  in  prices  for  the  decline 
that  has  been  going  on,  until  prices  were  back 
to  the  level  of  perhaps  two  or  three  years 
before,  and  then  fixing  the  level  at  that 
point. 


164  HONEST    MONEY. 

The  Medium  of  Exchange. 

After  tlie  statistical  work  outlined  above 
had  been  completed,  Congress  should  repeal 
the  present  monetary  laws,  substituting  for 
the  definition  of  the  "  dollar  "  the  new  defini- 
tion agreed  upon.  It  should  then  provide  a 
currency  or  money  to  take  the  place  of  that 
now  used.  This  currency  should  be  a  paper 
money  similar  to  our  "  greenbacks. "  It 
should  be  a  legal  tender  for  all  debts  public 
and  private  (except,  of  course,  such  as  by  their 
terms  are  payable  in  gold).  In  fact,  the  only 
difference  between  such  notes  and  existing 
"promises  to  pay"  of  the  government  would 
be  that  the  new  notes,  as  is  evident  from  the 
new  definition  of  the  dollar,  would  be  promises 
to  pay  a  definite  value;  and  not  a  definite  quan- 
tity of  one  commodity  of  uncertain  value. 

The  notes  could  be  made  redeemable  in  any 
commodity  at  its  current  market  ^;?"/ce,  and 
should  contain  a  pledge,  on  the  faith  of  the 
government,  that  the  amount  of  the  currency 


A    NEW    MONETARY    SYSTEM.  165 

in  circulation  would  ha  at  all  times  so  con- 
trolled by  the  government  that  its  actual  pur- 
chasing power  would  conform  to  the  standard 
on  which  it  was  based. 

To  carry  out  this  pledge,  it  would  he  nec- 
essary to  have  a  small  corps  of  statisticians 
who  would  receive  and  tabulate  the  current 
market  prices  for  each  day;  and  who  would 
calculate  therefrom  the  aggregate  prices  of 
the  specified  quantities  of  all  the  commod- 
ities constituting  the  standard, —  in  similar 
form  to  the  final  table  before  mentioned,  and 
of  which  an  example  has  been  given.  If 
this  aggregate  for  any  day  were  more  or  less 
than  the  total  of  the  standard  taljle,  it  would 
show  that  prices  in  general  had  risen  or  fallen, 
and  some  money  should  be  withdrawn  from 
circulation,  or  more  issued  until  the  daily 
total  corresponded  with  the  standard  total. 

Doubtless  several  plans  might  be  proposed 
for  putting  such  a  money  into  circulation  and 
controlling  its  volume.  The  following  seems 
to  commend  itself  by  its  simplicity  and  effec- 


166  HONEST    MONEY. 

tiveness  of  control,  for  at  least  a  part,  if  not 
all,  of  the  issues,  viz. :  The  money  to  be  loaned 
by  the  government  on  approved  securities,  such 
as  their  own  bonds ;  other  bonds  of  states, 
counties,  cities,  railroads,  etc. ;  warehouse  re- 
ceipts, gold  and  silver  deposits,  etc.  First-class 
commercial  paper,  when  guaranteed  by  solvent 
banks,  might  also  be  taken,  especially  in  case 
of  threatened  panic.  In  short,  such  securities 
as  would  be  considered  the  safest  for  banks 
and  trust  companies  to  loan  upon,  all  under 
such  proper  restrictions  and  safeguards  as 
would  insure  their  safety  as  collateral.  The 
rate  of  interest  charged  for  such  loans  to  be 
a  variahle  one,  decreasing  as  prices  tended  to 
fall,  and  increasing  as  they  tended  to  rise, 
and  without  other  restriction.  This  would 
absolutely  control  the  volume  of  money, 
within  narrow  limits,  since  more  would  be 
borrowed  at  a  lower,  and  less  at  a  higher  rate, 
of  interest,  yet  the  control  would  be  elastic. 

While  the  loans  should  be  for  short  time, 
they  could    be   renewed   at  pleasure,  and   as 


A    NEW    MONETARY    SYSTEM.  167 

often  as  desired,  at  the  current  rate  of  inter- 
est, the  security  remaining  good. 

Such  a  plan  would  not  interfere  with 
general  banking  Inisiness  to  any  considerable 
extent.  In  order  to  prevent  monopoly,  the 
loans  should  be  open  to  all  on  equal  terms, 
and  the  list  of  approved  securities  acceptable 
as  collateral  should  ])e  made  as  wide  as  pos- 
sible, consistent  with  safety.  It  would  prob- 
ably be  found  by  experience,  however,  that 
the  principal  borrowers  direct  from  the  gov- 
ernment would  be  the  banks,  who  would 
re-loan  the  money  (at  a  sufficiently  higher 
rate  to  pay  them  for  their  trouble)  to  their 
customers,  on  local  securities,  commercial 
paper,  etc.,  as  they  now  do. 

In  fact,  the  present  system  of  national 
banks  could  be  made,  with  few  changes  in 
the  regulations  governing  them,  a  most  val- 
uable adjunct  to  the  plan  as  a  distributing 
agency,  and  the  plan  is  one  that  it  would 
seem  ought  to  meet  with  approval.  They 
would,  it  is  true,  lose  their  present  note  cir- 


168  HONEST    MONEY. 

culation,  but  that,  under  existing  laws  and 
conditions,  is  of  little  or  no  profit  to  them. 
They  would  gain  by  its  being  unnecessary  for 
them  to  keep  so  large  a  reserve  of  cash  on 
hand  as  they  are  often  obliged  to  do  now ; 
for  not  only  would  the  whole  financial  sys- 
tem be  more  stable  than  now,  but  they 
might  safely  be  allowed  to  carry  a  part 
of  the  present  15  to  25  per  cent,  reserve, 
required  by  law,  in  such  securities  as  they 
could  at  all  times  use  as  collateral  with 
the  government.  They  would  gain  even 
more  by  the  security  such  a  system  presents 
against  panics  and  senseless  runs,  which  so 
often  compel  solvent  banks  to  close  their 
doors.  In  short,  the  government  would  act 
toward  the  banks,  not  as  a  competitor,  but 
rather  in  the  relation  that  the  New  York 
clearing-house  has  several  times  acted  toward 
its  members  in  times  of  panic,  by  the  issue 
of  clearing-house  certificates,  —  a  quasi-money 
that  helped  them  in  time  of  need.  The  gov- 
ernment would  not  be  subject  to  the  limita- 


A    NEW    MONETARY    SYSTEM.  1G9 

tions  of  the  clearing-house,  however.  The 
money  it  loaned  would  be,  unlike  clearing- 
house certificates,  a  legal  tender  everywhere ; 
and  the  protection  would  extend  to  all  the 
banks  of  the  country.  The  government  would 
act  toward  the  banks  in  somewhat  the  same 
way  as  they  act  toward  individuals,  or  as 
the  Bank  of  England  acts  towards  the  other 
English  banks,  as  a  sort  of  reserve  agent.  In 
this  case,  however,  the  resources  as  to  money 
would  be  unlimited.  In  the  manner  of  regu- 
lating the  volume  of  money,  also,  this  plan 
would  resemble  that  of  the  Bank  of  England, 
since  that  institution  attempts  in  a  feeble 
way,  and  prompted  doubtless  by  self-interest, 
to  regulate  the  volume  of  money,  to  some 
extent,  by  raising  the  discount  rate  when  the 
volume  is  decreasing,  as  evidenced  by  exports 
of  gold,  and  lowering  the  rate  when  gold  is 
being  imported. 

.  If  it  were  impossible  or  inexpedient  to  loan 
in  the  above  manner  all  the  money  the  coun- 
try required,  a  sufficient  amount  could  be  so 


170  HONEST    MONEY. 

loaned  as  to  give  an  absolute  control  of  the 
volume,  and  to  regulate  its  value  at  all  times, 
and  the  balance  could  be  issued  in  exchange 
for  the  present  greenbacks,  and  for  interest- 
bearing  bonds  of  the  government,  thus  con- 
verting a  part  of  the  interest-bearing  debt 
into  a  permanent  non-interest-bearing  one. 

It  is  evident  that  the  control  of  such  a  sys- 
tem should  rest  with  the  government,  and 
not  be  left  to  any  banking  institution ;  for 
a  bank  would  be  more  influenced  by  con- 
siderations of  profit  than  of  proper  control  in 
the  interests  of  all.  The  interest  received  by 
the  government  would  be  a  minor  considera- 
tion, the  control  of  the  volume  being  the 
main  object,  and  the  rate  of  interest  a  means 
merely  to  that  end.  The  people,  besides, 
would  have  at  all  times  a  greater  confidence 
in  notes  issued  directly  by  the  government 
than  they  could  have  in  notes  issued  by  any 
bank,  however  strong. 

The  department  of  the  government  to  be 
charged  with  this  issuing  function  should,  of 


A    NEW    MONETARY    SYSTEM.  171 

course,  be  entirely  distinct  and  separate  from 
the  other  departments.  Its  sole  business 
should  be  the  maintenance  of  an  honest 
money.  It  should  have  no  connection  with 
the  general  expenditures  of  the  government, 
further  than  to  pay  into  the  Treasury  such 
profits,  in  the  way  of  interest,  as  might  be 
received.  The  government  expenses  should 
be  met,  as  they  now  are,  by  the  receipts  from 
taxes  and  duties,  or,  if  these  were  insufficient 
at  any  time,  by  borrowing  money  on  its  bonds. 
Under  no  circumstances  should  money  from 
the  issuing  department  ever  be  taken  for  the 
expenses  of  government,  except  in  the  same 
way  that  banks  or  individuals  might  receive 
it,  and  never  then  to  an  extent  that  would 
raise  average  prices. 

The  legal  tender  provision  of  the  notes 
would  be  necessary  only  as  specifying  the 
medium  in  which  payment  of  debts  should 
be  made,  to  prevent  misunderstanding,  and 
for  the  protection  of  debtor  and  creditor  alike. 
The  new  dollar  being  a  quantity  of  value,  and 


172  HONEST    MONEY. 

not  of  a  specified  commodity,  a  loan  might 
be  returned  in  any  commodity  of  that  value 
but  for  some  such  provision. 

The  provision  could  in  no  case  wrong  a 
creditor,  for  what  he  would  receive  in  pay- 
ment of  the  debt  would  be  a  positive  guaran- 
tee to  deliver  him  the  value  specified  in  any 
commodity  he  chose.  Making  the  money 
redeemable  in  any  of  the  commodities  on 
which  it  is  based  would  be  only  a  form,  and 
might  be  omitted ;  it  is  suggested  merely  as 
obviating  any  objections  to  an  irredeemable 
money.  Of  course  the  government  would 
never  be  called  upon  to  so  redeem  money, 
since  the  holder  of  it  could  exchange  it  for 
the  commodity  wanted  in  the  open  market  to 
equal  advantage.  No  reserve  of  commodities 
of  any  kind  need  be  kept,  therefore,  for  re- 
demption purposes.  One  great  difference 
between  this  plan  and  existing  systems  will, 
of  course,  be  seen  at  once  :  the  present  system 
promises  a  definite  amount  of  gold,  and  must, 
therefore,  keep  a  gold  reserve ;  but  as  no  one 


A    NEW    MONETARY    SYSTEM.  173 

really  wants  the  gold,  except  to  exchange  for 
commodities,  this  plan  proposes  to  do  away 
with  the  necessity  for  a  gold  reserve  by  guar- 
anteeing that  the  money  can  be  directly  ex- 
chaniired  for  such  commodities  at  the  current 
market  price,  —  which  is  all  that  can  be  done 
with  the  gold,  —  and  that  the  average  pur- 
chasing power  of  such  money  shall  not  vary 
as  gold  does. 

It  nmst  not  be  supposed  that  this  plan  con- 
templates any  control  of  individual  prices. 
Such  will  be  free  to  fluctuate  in  accordance 
with  the  law  of  supply  and  demand,  as  they 
now  and  ever  must  do,  regardless  of  the 
monetary  system  used.  It  would  not  be 
desirable,  even  if  it  were  possible,  to  make 
individual  prices  constant ;  Ijut  what  is  desir- 
able and  possible,  and  what  it  is  believed 
this  system  would  accomplish,  is  to  relieve 
the  prices  of  all  commodities  from  the  fluctua- 
tions due  to  changes  in  value  of  the  one  com- 
modity by  which  all  others  are  measured ;  to 
make  the  money — the  one  commodity  which 


174  HONEST    MONEY. 

no  one  wants  except  for  measuring  the  value 
of  and  exchanging  for  other  commodities  — 
of  constant  vakie.  The  prices  and  values  of 
gold  and  silver  would  then  depend  on  their 
use  for  other  than  money  purposes,  or  for 
money  purposes  in  other  countries,  and  if  the 
value  of  either  metal  should  fall,  or  fail  to 
continue  to  rise,  there  would  be  no  room  for 
complaint  that  it  was  being  discriminated 
against  by  the  laws,  since  all  commodities 
would  be  treated  alike,  and  the  demand  for 
none  increased  over  what  it  would  otherwise 
be  by  its  selection  for  monetary  uses. 

It  is  evident  that  gold  could  still  be  used 
as  a  hoard  of  value,  if  desired,  but  such  use 
would  in  no  way  interfere  with  the  volume 
of  money,  as  it  now  does.  Neither  would 
the  hoarding  of  money  itself  affect  prices  and 
cause  business  stagnation  as  is  the  case  now. 
The  reasons  for  such  hoarding  would  be  mostly 
done  away  with,  but  if  any  should  remain  and 
the  money  be  hoarded,  the  government  would 
at  once  issue  as  much  more  as  was  needed  to 


A    NEW    MONETARY    SYSTEM.  175 

siippl}^  the  deficiency  so  created,  tliii.s  iiiaiii- 
taining  its  value  constant,  and  wlien  the 
money  hoarded  was  again  put  in  circulation 
the  government  would  withdraw  a  portion  of 
it  if  it  were  excessive  in  amount. 

The  exchange  of  the  new  money  for  the 
existing  kinds  would  be  a  matter  of  practical 
financiering,  presenting  no  unusual  difficul- 
ties.    This  need  not  be  enlarged  upon. 

The  gold  certificates  should  be  redeemed 
with  the  gold  now  held  for  that  purpose. 
This  gold,  as  well  as  that  now  in  private 
hands,  would  thereafter  take  care  of  itself. 

The  silver  dollars,  and  all  forms  of  paper 
money,  should  be  redeemed  in  the  new  money, 
dollar  for  dollar ;  the  paper  money  should  be 
cancelled,  and  the  bullion  —  l)oth  gold  and 
silver  —  sold  gradually,  with  due  regard  to 
the  effect  of  such  sales  on  the  prices  of  gold 
and  silver,  especially  the  latter.  The  pro- 
ceeds of  such  sales  in  the  new  money  should 
also  be  retired  from  circulation. 

As  a  final  result,  the  new  money  issued  would 


176  HONEST    MONEY. 

all  be  in  the  form  of  loans  to  banks  or  individ- 
uals, except  to  the  amount  used  in  redeem- 
ing the  uncovered  paper  now  outstanding,  less 
the  reserve  fund  (and  some  loss  that  would 
result  from  the  sale  of  silver  below  the  price 
paid  for  it).  This  net  balance  of  the  new 
money  issued,  above  what  was  issued  as  a 
loan,  could  be  left  as  an  uncovered  paper  issue, 
as  it  now  is ;  but  for  the  sake  of  uniformity  it 
would  be  better  to  make  all  the  money  a  loan 
issue,  in  which  case  it  would  be  necessary  to 
issue  bonds  to  take  up  such  amount.  It  rep- 
resents now,  of  course,  a  remnant  of  our  war 
debt,  not  refunded.  No  increase  of  interest 
charges  would  result  from  funding  it  in  bonds, 
for  the  interest  on  the  bonds  would  be  offset 
by  the  interest  on  the  equal  amount  of  extra 
mone}^  that  would  be  loaned  in  that  case.  It 
would  make  no  difference  as  regards  this  sren- 
eral  plan  which  of  the  two  methods  were 
adopted. 

This  plan  should  not   be  confounded  with 
any  '•  fiat  money"  or  unlimited  "  greenback" 


A    NEW    MONETARY    SYSTEM.  177 

proposals.  Its  nicaiii  point  is  directly  the  oppo- 
site of  these,  to  secure  a  more  complete  control 
of  money  volume.  It  is  not  an  attempt  to 
make  something  out  of  nothing,  or  to  create 
value  by  government  fiat  or  authority  where 
none  existed  before,  or  to  coin  the  govern- 
ment's credit,  —  although  there  is  no  valid 
objection  to  doing  the  latter  when  properly 
limited. 

It  is  simply  an  exchange  of  credit,  analo- 
gous to  the  operation  of  ever}^  bank.  The 
government  would  loan  a  command  over 
immediate  goods  (represented  by  its  promise 
to  deliver  such  goods  on  demand)  in  exchange 
for  a  promise  to  return  such  command  over 
goods  at  a  future  time,  and  secured  by  a 
deposit  of  collateral ;  and  in  payment  for  the 
difference  between  the  value  of  present  and 
future  goods  it  would  charge  interest.  This 
is  precisely  what  the  loan  department  of 
every  bank  does.  Every  man  who  accepted 
the  money  in  payment  for  goods  would 
deposit,  for  the  time  being,  with  the  govern- 


178  HONEST    MONEY. 

ment  the  command  over  commodities  in  gen- 
eral which  he  owns ;  the  money  being  his 
certificate  of  deposit.  This  would  constitute 
the  fund  from  which  the  loans  were  made, 
just  as  the  deposits  in  a  bank  constitute,  in 
the  main,  its  loan  fund.  When  the  money 
was  used  to  purchase  goods,  it  would  be 
redeemed,  so  far  as  the  purchaser  was  con- 
cerned, and  the  claim  would  be  transferred  to 
the  seller  of  the  goods,  who  in  turn  would 
become  a  depositor. 

Like  every  bank,  the  government  would 
rely  on  the  probability  that  all  claims  against 
it  would  not  be  presented  for  payment  at 
once,  but  this  probability  would  amount  to  a 
certainty  in  the  case  of  the  government,  for 
there  would  be  no  probability  of  any  of  the 
claims  being  presented  for  direct  redemption, 
as  every  one  who  had  goods  to  sell  would 
redeem  the  notes,  so  far  as  the  holder  was 
concerned. 

The  honesty  of  the  government  as  an  agent 
for  all  the  people  is,  of  course,  assumed  in 


A    NEW    MOXETARY    SVSTKM.  179 

this  plan  ;  but  tlic  credit  of  the  government, 
in  any  other  than  a  trust  capacity,  is  neither 
assumed  nor  involved,  since  it  Avould  hold 
secured  claims  against  others  for  every  dollar 
issued  (unless,  of  course,  a  portion  of  the 
money  was  left  as  an  unsecured  issue,  which, 
as  above  stated,  is  no  necessary  part  of  the 
plan). 

Money,  in  its  ultimate  analysis,  is  simply  a 
claim  which  the  liolder  has  against  society 
for  goods  in  general.  It  is  the  faith  that 
such  claim  will  be  recognized,  and  its  value 
be  stable,  that  gives  currency  to  all  money. 

This  faith,  in  the  case  of  coin,  is  based 
wholly  on  long  custom  and  usage ;  in  the 
case  of  paper  money,  it  rests  on  such  custom 
joined  to  the  pledge  —  express  or  imj^lied  — 
of  the  issuer  of  the  paper. 

Selling  is  simply  the  exchange  of  a  partic- 
ular thing  for  a  command  over  things  in 
general,  and  the  reverse  —  buying  —  is  the 
exchange  of  the  general  command  over  goods 
for  some  particular  good. 


180  HONEST    MONEY. 

In  all  existing  moneys,  this  claim  is  one 
only  of  usage,  and  its  value  is  variable.  In 
the  plan  proposed  it  becomes  a  definite 
promise  of  such  goods  in  general,  and  to  a 
definite  value,  the  government  being  the 
guarantor. 

The  plan  closely  resembles  the  present 
national  banking  system,  but  broadened  and 
improved,  and  with  the  objectionable  features 
of  that  system  removed. 


CHAPTER   X. 

MERITS    AND    OBJECTIONS    CONSIDERED. 

The  foregoing  chapter  is  only  an  outline, 
but  is  believed  to  be  a  sufficiently  definite  one 
to  show  the  feasibility  of  the  plan. 

Merits  of  Plan. 

The  merits  of  the  plan  are  believed  to 
be :  — 

(1)  It  furnishes  a  standard  of  value  as 
nearly  invariable  as  it  is  possible  to  obtain  in 
practice. 

(2)  It  gives  a  medium  of  exchange  con- 
forming in  value  closely  to  the  standard,  one 
which  is  cheap,  convenient,  elastic,  and  to  be 
had  in  any  amount  needed. 

(3)  It  would  prevent  panics.   This  may  seem 

181 


182  HONEST    MONEY. 

an  extravagant  assertion,  but  further  consider- 
ation will  show  that  it  is  well  founded.  A 
panic,  whatever  the  cause,  manifests  itself  as 
an  unreasoning  fear  and  distrust,  which  pre- 
vents credit  from  doing  its  usual  work,  and 
creates  an  excessive  demand  for  money ;  not 
only  because  the  money  is  then  needed  by 
each  individual  who  demands  it,  but  because 
each  is  afraid  if  he  does  not  get  it  then  he 
will  not  be  able  to  get  it  when  he  does  need 
it.  It  means  a  hoarding  of  money,  a  great 
rise  in  its  value,  or,  as  generally  expressed,  a 
great  fall  in  prices.  All  this  is  enhanced  by 
the  knowledge  of  the  limited  amount  of 
money ;  in  fact,  the  fear  is  not  so  much  of 
the  ultimate  solvency  of  banks  and  business 
institutions  as  of  the  fact  that  there  may  not 
be  money  enough  to  go  round,  and  that  those 
who  are  not  first  will  be  at  a  disadvantage. 
The  plan  proposed  will,  in  the  first  place,  pre- 
vent the  growth  of  any  such  fear  up  to  the 
panic  point,  by  the  knowledge  that  the  gov- 
ernment stands  ready  to  furnish  any  amount 


MERITS    AND    OBJECTIONS    CONSIDERED.      183 

of  money  that  may  he  needed  to  maintain 
prices  ;  and,  in  the  second  phice,  if  hy  any 
chance  such  a  fear  should  arise,  its  first  mani- 
festation would  he  falling  prices,  which  would 
at  once  bring  an  increase  of  money  volume 
to  meet  the  demand.  It  is  well  known  that 
nothing  will  so  effectively  prevent  a  panic 
that  is  impending,  or  check  one  that  has 
already  begun,  as  the  assurance  that  the  insti- 
tutions involved  stand  ready  to  meet  any  de- 
mands that  may  be  made  upon  them.  A  run 
could  hardly  originate  on  a  bank,  believed  to 
be  solvent,  were  it  known  that  it  could  obtain 
at  any  moment  all  the  money  needed  for  the 
emergency.  An  element  of  certainty  and 
stability  would,  by  this  protection,  be  given 
to  all  banks,  and  through  them  to  all  solvent 
and  legitimate  business  institutions,  which  is 
now  sadly  lacking ;  and  business  men  would 
be  relieved  of  much  of  the  anxiety  and  worry 
that  at  times  harass  them  under  present 
conditions. 

(4)    The  proposed  plan  would  tend  to  pre- 


184  HONEST    MONEY. 

vent  those  alternating  periods  of  stimulation 
and  depression  of  business  known  as  "  good 
times"  and  "bad  times."  It  is  not  to  be 
expected  that  any  money  system,  however 
perfect,  can  wholly  prevent  excessive  specula- 
tion, or  development  beyond  the  needs  of  the 
people,  of  particular  industries;  nor  can  it 
prevent  such  action  from  being  followed  by 
its  natural  consequences  of  disaster  and  loss. 
Wasted  labour,  like  wasted  force  of  any  kind, 
can  never  be  regained.  Alternations  of  pros- 
perity and  adversity,  of  confidence  and  dis- 
trust, will  probably  always  continue,  as  they 
always  have ;  but  much  can  be  done  to  lessen 
the  extent  of  the  fluctuations.  A  money  vol- 
ume adjusted  to  keep  prices  constant,  as  a 
whole,  will  evidently  operate  to  prevent  pros- 
perity from  developing  into  a  "  boom "  (sure 
to  be  followed  by  a  more  intense  reaction), 
and  will  prevent  the  ensuing  depression  from 
reaching  its  extreme  in  panic. 

(5)    The  adoption  of  the  scheme  would  do 
no  violence  to  existing  business.      It  would 


MERITS    AND    OBJECTIONS    CONSIDERED.      185 

act  rather  as  a  inild  stimulant  by  a  slight 
raising  of  prices,  and  as  a  greater  stimulant, 
through  the  confidence  it  would  give.  It 
would  do  no  violence  to  the  habits  and  cus- 
toms of  the  people.  Accustomed,  as  they 
already  are,  to  a  half  dozen  different  kinds 
of  paper  money,  the  issue  of  a  new  one  by 
the  same  authority  to  take  the  place  of  the 
others  would  hardly  be  noticed,  especially  as 
the  change  could  be  and  ought  to  be  made 
gradually. 

If  any  change  were  necessary  at  a  future 
time  in  the  list  of  commodities  constituting 
the  standard,  it  could  be  made  in  the  same 
manner  that  the  standard  was  first  fixed 
upon,  with  no  disturbance  of  business,  or 
perceptible  change  in  money  value. 

(6)  The  interest  received  for  such  money 
would  probably  more  than  pay  the  interest 
on  the  outstanding  government  bonds,  and 
would  be  as  fair  and  equitable  a  form  of  tax- 
ation for  that,  or  any  other  purpose,  as  could 
be  devised. 


186  HONEST    MONEY. 

(7)  The  coin  and  bullion  we  now  use  could 
be  mostly  shipped  abroad  in  payment  of  our 
private  debts,  —  represented  by  American 
securities  held  there,  —  and  much  interest 
money  be  saved  to  this  country. 

(8)  Last,  but  not  least,  the  ^^la-n  would  be 
a  measure  wholly  American.  This  country 
would  stand  alone,  free  from  the  disturbing 
effects  of  foreign  monetary  legislation.  Not 
that  our  foreign  commerce  would  be  lessened, 
or  would  be  free  from  the  effects  of  commer- 
cial disturbances  in  other  countries  :  commerce 
is  such  a  world-wide  and  intricate  network 
that  it  would  be  impossible,  even  if  it  were 
desirable,  for  one  country  not  to  be  affected  by 
changes  in  others ;  but  our  money,  the  prices 
of  commodities,  as  a  whole,  in  that  money, 
and  the  relations  of  debtor  and  creditor  in 
this  country  would  be  free  from  foreign  influ- 
ences. 

There  are  many  minor  merits  in  the  plan, 
such  as  its  tendency  to  equalize  interest  rates 
on  the  same,  or  on  equally  good,  security  all 


MERITS    AND    OBJECTIONS    CONSIDERED.      187 

over  the  country ;  the  facility  with  which 
money  woukl  flow  from  the  central  source  to 
the  point  where  it  was  needed,  and  return 
when  not  needed,  instead  of  having  to  filter 
through  many  banks  with  much  loss  of  time 
and  expense,  as  it  now  does ;  the  saving  of 
what  is  now  lost  by  abrasion  of  coin,  etc. ;  but 
these  points  need  not  be  enlarged  upon. 

Objections  Answered. 

It  is  to  be  expected  that  many  objections 
would  be  raised  to  a  plan,  seemingly  so  radi- 
cal as  a  whole,  although  it  is  in  reality  com- 
posed of  old  and  tried  methods  in  most  of  its 
parts.  It  may  be  well,  therefore,  to  anticipate 
some  of  the  objections  likely  to  be  brought 
forward  and  to  endeavour  to  answer  them. 

Probably  one  of  the  first  points  to  l^e  raised 
against  the  plan,  and  one  that,  judging  from 
recent  discussion  in  magazine  articles,  would 
be  strongly  urged,  is  that  it  would  have  a  bad 
effect  on  our  foreign  trade,  and  would  divorce 
our  prices  from  those  of  foreign  countries. 


188  HONEST    MONEY. 

It  has  already  been  shown,  in  the  chapter 
on  foreign  commerce,  that  such  fears  are 
wholly  unfounded,  and  that  it  makes  no 
difference  what  the  money  is  based  on ;  if  it 
is  reasonably  stable  in  value,  foreign  trade 
will  not  be  disturbed. 

In  any  event,  ceasing  to  use  gold  in  our 
domestic  commerce  would  only  leave  a  larger 
amount  available  for  foreign  commerce  if  it 
were  needed.  Gold  would  continue  to  be  a 
commodity  produced  by  this  country,  and 
dealt  in  as  all  commodities  are,  and  if  it  were 
a  necessity  or  convenience  for  the  transaction 
of  foreign  business,  the  bankers  engaged  in 
such  business  would  keep  a  sufficient  amount 
on  hand  for  their  requirements.  It  is  not 
believed,  however,  that  any  such  necessity 
would  be  felt,  either  by  the  bankers  doing  a 
foreign  business,  or  by  the  government  in 
providing  for  the  payment  of  interest  on  its 
bonded  debt.  The  latter  would  probably  have 
to  be  calculated  in  gold,  in  accordance  with 
the  terms  of  the  contract,  but  could  be  paid 


MERITS    AND    OBJECTIONS    CONSIDERED.      189 

as  well  ill  the  current  money.  All  such  bonds 
would  in  a  few  years  be  redeemed,  and  any 
inconvenience  from  this  source  would  be  short- 
lived and  slight  at  most. 

As  to  divorcing  our  prices  from  those  of 
other  countries,  the  objection  would  have  no 
weight.  The  values  of  any  of  our  commodi- 
ties, compared  with  those  in  other  countries, 
would  in  no  way  bo  affected.  No  legislation 
can  affect  or  determine  the  amount  of  one 
commodity  that  will  exchange  for  another, 
either  at  home  or  abroad,  except  as  it  may 
alter  the  relations  of  supply  and  demand 
affecting  them,  by  tariffs  or  taxes,  or  by  the 
selection  of  some  special  one  for  a  particular 
use,  as  is  now  done  in  the  case  of  gold  for 
money  uses. 

The  values  of  gold,  and  of  silver  (to  a  less 
degree),  would  be  the  only  things  affected  by 
the  proposed  change.  All  others  would  re- 
main the  same :  the  money  of  our  own  or 
any  other  country  would  continue  to  be  used 
as  a  measure  of  such  values,  and  if  our  prices 


190  HONEST    MONEY. 

rose  as  measured  in  such  money,  so  also  would 
foreign  prices  by  the  same  measure.  The  ex- 
change rates  would  vary  as  they  now  do,  and 
between  wider  limits ;  but  the  variations 
would,  probably,  not  be  rapid  enough  to  affect 
foreign  trade  injuriously.  Our  money  would 
be  constant  in  value,  and  if  the  gold  varied, 
the  slight  inconvenience  it  might  be  to  the 
few  directly  engaged  in  foreign  trade  would 
be  a  small  matter  compared  with  doing  vio- 
lence to  our  immense  domestic  commerce,  by 
using  such  a  variable  standard. 

In  regard  to  all  obligations  that  are  made 
payable  specifically  in  gold,  they  should,  of 
course,  be  paid  on  that  basis ;  but  as  the  value 
of  gold  would  be  lessened  by  the  shipment  of 
it  abroad,  if  we  abandoned  it  as  a  money 
basis,  the  makers  of  such  obligations  would 
suffer  less  than  they  now  do,  or  are  likely 
to  do  in  the  future,  because  of  the  apprecia- 
tion of  gold  value.  Gold  could  always  be 
had  to  meet  such  obligations  by  paying  its 
current  price,  and  that  price  would  represent 


MERITS    AND    OBJECTIONS    CONSIDERED.      191 

less  of  commodities  in  general  than  it  now 
does. 

It  does  not  seem  as  if  there  could  be  any 
objection  raised  to  the  plan  on  the  ground 
of  unconstitutionality,  since  the  greenbacks 
were,  and  are,  held  to  be  constitutional,  and 
the  new  notes  would  be  promises  to  pay  gold 
and  silver,  as  well  as  other  commodities,  if 
they  were  included  in  the  list  on  which  the 
money  was  based,  not,  to  be  sure,  in  a  definite 
quantity,  but  in  a  definite  value. 

A  more  valid  objection  might  be  urged,  in 
the  danger  of  entrusting  to  public  ofiicials  so 
great  a  power  as  the  control  of  money  value 
would  seem  to  be. 

In  reply  to  this  it  may  be  said,  that  an 
inefficient,  or  to  some  extent  even  dishonest, 
control  would  be  far  preferable  to  no  control 
at  all,  —  which  is  the  present  condition.  The 
greater  concentration  of  capital  in  our  modern 
industrial  system,  and  the  increasing  values 
handled,  necessitates  the  entrusting  of  greater 
responsibilities  to  individuals,  in  both  public 


192  HONEST    MONEY. 

and  private  business,  and  it  has  not  been 
found  that  the  men  selected  for  the  higher 
positions  of  trust  in  public  life  were  often 
recreant  to  the  trust  reposed  in  them,  or 
inadequate  to  its  responsibilities,  even  where 
much  was  left  to  their  discretion.  In  the 
plan  proposed,  however,  almost  nothing  would 
be  left  to  the  discretion  of  the  officials  in 
charge. 

The  act  of  Congress  putting  the  plan  in 
force  could  provide  for  any  contingencies 
likely  to  arise,  and  the  duties  of  the  officials 
would  be  mandatory,  so  far  as  the  adjustment 
of  the  volume  of  money  was  concerned  and 
the  method  of  accomplishing  it.  Beyond 
that,  errors  of  judgment,  or  even  of  inten- 
tion, could  do  little  harm.  Surely  it  is  not  ex- 
pecting too  much  of  a  public  official,  that  he 
shall  carry  out  his  mandatory  instructions, 
especially  as  any  variation  therefrom  would  be 
liable  to  immediate  detection,  and  could  be 
corrected  before  harm  was  done. 

It  might  be  objected  that  the  government 


MERITS    AND    OBJECTIONS    CONSIDERED.      193 

should  not  go  into  tlie  lianking  business,  that 
it  is  not  one  of  its  legitimate  functions. 

Avoiding  the  question  of  what  the  legiti- 
mate functions  of  government  are,  —  about 
which  there  is  room  for  a  large  difference  of 
opinion,  —  it  may  be  said  that  the  plan  does 
not  contemplate  the  government  entering  the 
banking  business  as  a  competitor  of  existing 
banks,  but  rather  as  a  regulator  of  them. 
This  function  it  already  exercises,  and  the 
popular  demand  is  rather  for  an  increase  of 
such  control.  Furthermore,  the  Treasury, 
under  the  present  system,  is  the  largest 
holder  of  cash  in  the  country,  and  its  action 
is  at  any  time  of  vital  interest  to  the  banks. 
It  has  more  than  once  come  to  their  aid  in 
perilous  times,  to  the  extent  of  its  ability,  and 
had  its  ability  been  greater  it  could,  and 
doubtless  would,  have  done  so  more  fre- 
quently. At  times,  moreover,  the  actual 
money  held  in  the  Treasury  has  been  excessive, 
and  by  diminishing  the  volume  of  money  in 
circulation  this  has  badly  alfected  Ijusiness. 


194  HONEST    MONEY. 

The  proposed  plan  would  prevent  this,  and 
while  not  materially  enlarging  the  functions 
now  exercised  by  the  government,  would  make 
its  control  of  the  banking  system  more  direct 
and  effective,  to  the  benefit  alike  of  the  banks 
and  the  public.  Our  present  banking  system, 
admittedly,  shows  much  weakness  in  times  of 
panic.  Each  bank  expands  its  credits  to  the 
full  limit  in  times  of  prosperity,  for  its  own 
profit,  and  in  time  of  distress  contracts  them 
for  its  own  safety,  thus  increasing  the  distress 
at  such  times.  Under  this  plan  its  safety,  if 
solvent,  would  be  assured  without  the  need  of 
contracting  its  credits. 

As  to  controlling  the  volume  of  money,  this 
either  is,  or  is  not,  a  proper  governmental 
function.  If  it  is,  then  justice  demands  that 
the  control  be  efficient,  and  in  the  interests 
of  an  honest  money.  If  it  is  not,  —  if  the 
sole  duty  of  government  is  to  certify  to  the 
weight  and  fineness  of  pieces  of  metal  by  coin- 
ing them,  —  then  it  has  no  right  to  refuse  to 
coin   any  amount  that  may  be  presented  of 


MERITS    AND    OBJECTIONS    CONSIDERED.      195 

any  metal  the  people  or  any  section  of  them 
desire  to  use  as  money  ;  no  right  to  issue,  or 
authorize  others  to  issue,  on  government 
credit,  an}'  paper  money;  and  no  right  to 
forbid,  or  prevent  in  any  way,  banks,  firms, 
or  individuals  from  issuing,  on  their  own 
credit,  any  money  they  chose.  All  of  these 
acts  are  a  control  of  money  volume.  The 
mere  statement  of  such  an  alternative  is  a 
sufficient  refutation  of  the  claim.  It  would 
simply  be  financial  anarchy.  The  government 
must  control  money  volume,  and  the  control 
should  be  real,  effective  and  honest. 

Other  objections  might  be  raised  to  this 
plan,  but  none  are  foreseen  of  sufficient 
weight  or  gravity  to  offset  in  any  consider- 
able degree  the  merits  it  seems  to  present. 


CHAPTER   XI. 

CONCLUSION. 

A  UNIVERSAL  money  for  the  whole  world 
has  been  the  dream  of  some  writers.  This 
in  many  respects  would  be  a  convenience,  as 
would  a  general  uniformity  of  weights  and 
measures ;  but  its  benefits  would  be  confined 
mainly  to  a  saving  of  clerical  work,  and  even 
this  would  not  be  as  great  an  advantage  as 
might  be  supposed,  since  differences  in  value 
of  bills  of  exchange  would  continue  to  exist, 
even  as  they  now  exist  between  countries 
using  the  same  money,  or  even  between  differ- 
ent cities  of  the  same  country. 

Unless  the  universal  money  were  stable  in 
value,  it  would  be  as  dishonest  as  the  existing 
systems,  and  to  make  it  stable  would  involve 

196 


CONCLUSION.  197 

its  absolute  control  in  volume  by  some  cen- 
tral power  to  which  the  various  nations  would 
delegate  their  authority.  Such  a  thing  is 
most  unlikely  to  happen.  The  obstacles  of 
national  prejudice  and  habit  are  too  strong 
to  be  overcome,  —  as  will  be  evident  from  a 
perusal  of  Mr.  Walter  Bagehot's  work,  "  Uni- 
versal Mone}'^"  —  and  the  advantage  to  be 
gained  by  it  is  not  worth  the  trouble.  A 
universal  money,  then,  must  be  considered  as 
a  Utopian  dream ;  and  a  plan  that  provides 
for  our  own  country  an  honest  money  seems 
to  be  the  highest  success  to  which  we  can  at 
present  aspire  in  the  settlement  of  this  vital 
and  all-important  question. 

Whether  future  legislation  be  based  on 
some  such  plan  as  the  one  here  outlined,  or 
whether  another  can  be  devised  that  will 
more  closely  meet  the  requirements,  the  fun- 
damental principles  we  have  considered  should 
be  kept  in  mind  in  any  change  that  is  made. 

It  should  also  be  clearly  understood  that 
no  monetary  legislation,  by  this  or  any  other 


198  HONEST    MONEY. 

country,  can  alter  the  relative  values  of  all, 
or  any,  of  the  commodities,  including  gold  and 
silver,  which  enter  into  human  use  and  con- 
sumption, except  in  so  far  as  such  legislation 
shall  affect  their  relative  supply  and  demand. 
All  that  legislation  can  really  beneficially  do, 
is  to  provide  a  stable  standard  of  value,  as  it 
now  provides  stable  standards  of  length  and 
weight,  and  to  provide  a  medium  of  exchange 
that  shall  always  conform  in  value  to  that 
standard,  and  shall  be  at  once  convenient  and 
economical. 

Opinions  may  honestly  differ  as  to  the  best 
means  of  providing  such  a  money,  but,  when 
fully  understood,  no  difference  of  opinion  can 
exist  as  to  the  benefit  it  would  be  to  all 
classes  of  society,  without  exception. 

The  labourer  gains  by  employment  being 
more  certain  and  constant ;  by  the  knowledge 
that  open  competition  with  capital  will  deter- 
mine the  shares  of  the  joint  product  which 
each  shall  receive,  —  that  he  will  not  be  the 
victim  of  an  insidious  change  in  money  value 


CONCLUSION.  199 

or,  whil(>  receiving  nominally  higher  wages, 
be  perhaps  getting  lower  real  wages.  With 
an  honest  money,  real  and  nominal  wages 
coincide,  and  a  rise  or  fall  of  wages  is  known 
at  once  as  a  benefit  or  an  injury.  The  effect 
on  wages  would  be  toward  an  increase,  by 
stimulating  production  and  enhancing  the 
demand  for  labour ;  while  the  labourer's 
ability  to  purchase  more  would  absorb  such 
increased  production  and  improve  his  con- 
dition. 

The  employer  of  labour  would  gain  by  the 
certainty  that  his  success  will  depend  more 
largely  on  his  own  ability  and  endeavour, 
and  less  on  causes  which  are  not  only  beyond 
his  control,  but  on  which  he  cannot  even 
calculate  with  certainty;  while  the  greatest 
risks  to  which  he  is  now  subject  will  be 
removed. 

This  applies  not  only  to  manufacturers,  but 
to  industrial  enterprises  of  all  kinds. 

Railroad  stockholders  would  be  especially 
benefited.     No  other  business,  perhaps,  carries 


200  HONEST    MONEY. 

SO  large  a  fixed  indebtedness,  in  proportion  to 
its  value,  as  railroads,  and  the  stockholders 
suffer  more  from  an  advance  in  the  value  of 
money  than  most  other  owners.  The  fact 
that  they  are  to  some  extent  monopolies  and 
can  keep  their  rates  the  same,  or  even  in- 
crease them,  with  money  value  rising,  does 
not  alter  the  case ;  for  the  amount  of  traffic 
will,  under  such  conditions,  be  lessened,  and 
it  is  impossible  for  most  railroads  to  reduce 
expenses  in  anything  like  a  proportion  to  the 
reduction  of  income  from  diminished  business, 
because  of  the  large  fixed  charges. 

Merchants  would  be  benefited  by  the 
greater  general  stability  of  prices,  and  would 
be  relieved  of  many  of  the  risks  of  business. 
They  would,  if  solvent,  have  assurance  that 
they  could  get  money  when  needed,  and  the 
failures  would  be  fewer. 

Money  loaners  would  also  be  benefited. 
It  might  seem,  at  first  sight,  as  if  they  would 
not,  since  they  profit  directly  by  an  increase 
of  money  value ;  but  this  is  a  narrow  view. 


CONCLUSION.  201 

AVliilc  the  money  loaiici'.  as  before  shown, 
gets  an  luidiu'  and  unjust  share  of  the  prod- 
ucts of  hibour  and  capital  wlien  prices  are 
falling,  yet  the  secondary  effects  of  such  a 
fall, — the  increased  competition  for  loans,  and 
diminished  demand  for  capital  for  business 
enterprises,  —  by  lowering  interest  rates,  tends 
to  offset  this  gain  ;  and  the  doubt  and  uncer- 
tainty as  to  security  keep  capital  idle  as  well 
as  labour.  The  lender  gets  a  larger  share  of 
the  total  product  than  he  is  entitled  to,  under 
such  conditions  ;  but  the  total  product  is  so 
much  lessened  as  a  wliole,  that  his  larger 
share  is  less  in  actual  amount  than  a  just 
share  of  the  larger  product  would  be,  were 
money  honest  and  prices  constant.  Moreover, 
one  of  tlie  most  important  considerations  to  a 
lender  is  security,  and  this  is  much  lessened 
witli  falling  prices,  and  the  loaner  is  fre- 
quently obliged  to  take  the  property  which  is 
security  for  his  loan.  He  does  not  want  the 
care  and  management  of  it,  as  it  is  generally 
far  less  valuable  in  his  hands  than  in  those  of 


202  HONEST    MONEY. 

the  original  owner ;  the  latter  thereby  loses 
something  which  he  could  use,  and  the  former 
gains  something  he  has  no  use  for,  and  no 
one  is  really  benefited.  It  cannot  be  con- 
sidered, therefore,  that  loaners,  as  a  class, 
either  profit  by  or  desire  such  a  condition  of 
business  depression  and  panic  as  is  largely 
produced  by  dishonest  money. 

A  few  individuals  there  may  be  —  the 
leeches  or  wreckers  of  society  —  who  rejoice 
at  and  profit  by  the  general  misfortune  of 
all ;  but  they  are  not,  it  is  believed,  suffi- 
ciently numerous  to  make  their  desires  im- 
portant or  consideration  for  them  a  matter  of 
anxiety. 

In  view  of  these  considerations,  the  at- 
tempt—  so  often  made  in  discussing  the 
question  of  money  —  to  set  class  against 
class,  to  lead  labour  to  consider  capital  as 
its  enemy,  to  embitter  the  relations  between 
borrower  and  lender,  and  between  the  banks 
and  the  public,  is  greatly  to  be  deplored. 
Competitors  in  a  sense  these  different  classes 


CONCLUSION.  203 

doubtless  are,  but  so  far  as  an  honest  money 
is  concerned  all  are  partners;  all  Avould  be 
gainers  by  it  and  none  losers.  Past  experi- 
ence does  not  lead  ns  to  expect  that  men 
will  generally  become  unselfish  and  altru- 
istic in  their  motives  in  the  near  future. 
Business  will  continue  to  be,  as  it  always  has 
been,  a  struggle  for  the  greatest  amount  of 
commodities  with  the  least  labour ;  and  the 
plea  for  an  honest  money  rests  not  upon 
altruism,  but  upon  the  enlightened  selfishness 
which  teaches  that  honesty  is  the  best  policy, 
in  a.  money  system  as  in  other  things,  and 
that  it  is  not  f)i"ofitable  to  kill  the  goose  that 
lays  the  golden  eggs. 


INDEX 


Aldricli  Keport,  the,  S.'!. 

Bagehot,  WaltiT,  quoted,  ."4,  122, 

197. 
Bank-notes,    national,    proposal 

for  inereasing  issue  of,  14(1. 
Bi-metallisni,  ■4(),<i7. 
Bohni-Bawerk,  von,  quoted,  4,  7. 

Capital   and   money,  distinetion 

between,  104. 
Coin.     Sr-e  Money. 
t!oin  and  paper  money,  22. 
Cost  of  production,  10. 
Credit,  money  forms  of,  92. 
Currency,  an  elastic.    See  Money. 

Decline  in  prices,  90,  191. 
Definitiou  of  money,  21. 
Definition  of  value,  1. 
Demand  and  supply.    See  Supply 

and  Demand. 
Dollar,  gold  and  silver,  12.5. 


Economist,  London,  on  foreign 
prices,  8.'>,  <S4,  .S().  I 

Ely,  Prof.  R.  T.,  quoted,  o2,  47. 

Employers  of  labour,  102,  199. 

Encyclnpxdia  Bntannica  ou 
money,  .'55. 

Excliange,  money  as  a  medium 
of.     See  Money. 

205 


Existing  monetary  systems,  51. 

Foreign  commerce,  112-124;  bal- 
an(!e  of  trade,  from  an  eco- 
nomic standpoint,  a  misnomer, 
114;  international  trade,  ib. 

France,  monetary  system  of, 
clianged  to  a  gold  basis,  70. 

Functions  and  requirements  of 
money,  25. 

Germany,  monetary  system  of, 
clianged  to  a  gold  basis,  70. 

Gold.  See  Money  and  Monetary 
Systems. 

Gold  production  between  the 
years  1850-57  in  Australia  ami 
California,  90. 

Gold-standard  arguments  criti- 
cised, 98;  Mr.  D.  A.  Wells' 
fallacy  of  deeming  labour  a 
test  of  value,  100;  threefold 
division  of  the  community  into 
labourers,  employers  of  labour, 
and  money  loaners,  102;  dis- 
tinction between  capital  and 
money.  iSVe  Stability  of  Gold 
and  Silver  Values. 

Gold  standard,  the,  .54. 

Greeiil)acks,  12G,  129,  146. 

Gresham's  law,  57,  59,  65,  (i7, 
149. 


206 


INDEX. 


Inconvertible  paper,  22,  7(i. 

India,  Euglisli  commission  on 
the  depression  of  trade  in, 
lilt;  silver  currency  in,  9!!. 

Livariable  money  value,  neces- 
sity for,  28,  40. 

Jevons,  Professor,  quoted,  2.^,  27, 
154. 

Labour,  productive  and  unpro- 
ductive, 14  ;  three  kinds  of,  as 
factors  in  making  for  the  value 
of  a  commodity,  15 ;  labour 
not  a  standard  of  value,  18. 

Laughlin,  Prof.  J.  L.,  quoted,  4H. 

Medium  of  exchange,  the,  1()4. 

Mexican  exchange,  120. 

Mill,  John  Stuart,  quoted,  C>,  14, 
18,  31,  36,  7(). 

Money  loaners,  103,  200. 

Money,  definition  of,  21 ;  F.  A. 
Walker's  comprehensive  defi- 
nition, ib. :  paper  money  and 
coin,  22  sqq. :  functions  and 
requirements  of,  25 ;  money  as 
'a  medium  of  exchange.'  'a 
measure  of  value,'  and  'a 
standard  of  deferred  pay- 
ments,' ib. ;  Professor  Walk- 
er's substitution  for  the  term 
'  measure  of  value,'  '  common 
denominator  of  value,'  2(5; 
money  as  '  a  store  of  value,' 
lb. ;  qualities  necsssary  to  a 
money  material,  27 ;  invariable 
value,  28 ;  fluctuations  in 
money  value,  30;  J.  S.  Mill 
on  the  purchasing  power  of 
money,  32;  the  Encijcloprndia 
Britannica  quoted,  or,;  money 
demand  and  supply,  3() :  money 
actual  and  money  in  forms  of 
predit,  38 ;  an  invariable  money 


value,  40;  a  change  of  money 
value,  a  robbery,  42 ;  F.  A. 
Walker,  on  decreasing  money 
value,  44 ;  a  flexible  or  elastic 
currency,  need  of,  45;  money 
in  all  countries  a  creature  of 
the  law,  53. 
Money  in  the  United  States,  125 ; 
greenbacks,  national  bank- 
notes, silver  and  gold  certifi- 
cates, treasury  notes,  currency 
certificates,  126;  gold  coin,  sil- 
ver coin,  128;  national  bank- 
notes wrong  in  principle,  129; 
no  means  to-day  of  meeting 
either  the  increasing  demand 
for  money  expanding  popula- 
tion and  commerce  bring,  or 
the  sudden  demand  that  a  fail- 
ure of  credit  may  bring,  133; 
results,  ib. ;  some  proposed 
changes  in  our  monetary  sys- 
tem, 137  ;  free  coinage  of  silver, 
138 ;  eri-oneous  views  confuted, 
139  ;  '  greenback  '  or  fiat 
money  proposals,  146;  increase 
of  the  issue  of  national  bank- 
notes a  mere  makeshift,  147; 
divorce  of  our  money  from  that 
of  other  countries  only  mode 
of  controlling  it  and  making  it 
honest,  150;  a  new  monetary 
system,  151 ;  standard  of  value, 
158  ;  medium  of  exchange,  l(i4  ; 
the  national  banks  as  a  distrib- 
uting agency,  107 ;  complete 
control  of  the  money  volume, 
177  ;  merits  of  plan  considered, 
181 ;  an  invariable  standard  of 
value,  ib.;  a  cheap,  convenient, 
and  elastic  medium  of  ex- 
change, ih.  ;  prevention  of 
panics,  ib. ;  repression  of  ex- 
cessive speculation  and  its  re- 
action, 183,   184;   plan  wholly 


INDEX. 


207 


American,  18!) ;  obje(!tii)ns  an- 
swered, 187  ;  conclnsion,  liili. 

Money  system,  our,  some  ])ri)- 
posed  cliangtis  in,  i;57. 

Money  valne,  29. 

Monetary  systems,  existing,  51 : 
tlie  gold  standard,  54 ;  Gres- 
liam's  law,  57  :  tlie  silver  stand- 
ard,(15;  li-nietallism,  (7 ;  paper 
money,  71  ;  J.  S.  jNIill  on  in- 
(!onvertil)le  paper,  7(). 

New  monetary  system,  n,  151- 
ISO. 

Panics  and  hard  times,  causes  of, 
45;  panic  of  1857,  collapse  of 
credit  in,  !)0;  panic  of  lS7o,  91. 

Paper  money,  71,  78;  Prof.  F.  A. 
Walker  on,  77.     See  Jloney. 

Patten,  Pmf.  Simon  N.,  (jnoted, 
7. 

Prices,  declining,  evils  of,  101 ; 
Professor  Sherwood  on  sta- 
l)ility  of,  48. 

Production,  cost  of,  10. 

Purchasing  power,  5. 

Ricardo,  David,  quoted,  14,  17, 
34,  46. 

Sauerbeck,  Mr.,  quoted, 83, 84, 87. 
Sherwood,  Siilney,  quoted,  48. 
Silver,    sfp.    Money ;    the    .silver 

standard,  •fee  Monetaiy  system. 
Silver,  free  coinage  of,  138,  l.')9. 
Silver  famine  of  the  Middle  Ages, 

82. 
Silver  production  in  Nevada,  91. 
Silver  standard,  the.  05. 
Silver-standard  prices,  94. 
Smith,  Adam,  referred  to,  14. 
Soetheer,  Dr.  quoted,  83,  84,  87. 
Stability     of     gold     and     silver 

values,  81-97 ;    gold  standard 

prices,  81;  European  economists 


on  prices,  83;  decline  in  i)rices, 
iK);  silver-standard  prices,  94. 

Standard  of  value,  the,  12,  158. 

Supply  and  demand,  8;  the  im- 
mediate determiner  of  value 
tlie  relation  between  su])i)]y 
and  demand,  ib.;  the  demand 
foi-  a  commodity  determined 
by  its  subjective  or  exchange 
value,, 9,  10;  close  connection 
between  value  and  tlic  ratio 
between  demand  and  supply, 
10. 

Tauschkraft,  5. 

United  States,  IJie,  .stops  free 
coinage  of  silver,  70. 

United  States  Senate  Finance 
Committee  Report  on  '  Whole- 
sale Prices,Wages,  and  Trans- 
portations,' 83. 

Value  and  the  standard  of  val- 
ne, 1-20;  definition  of  A'alue, 
1 ;  the  two  classifications  — 
'Value  in  use,'  and  'Value  in 
exchange,'  3;  Bohua-Bawerk 
on  'Value  in  the  subjective 
sense,'  4;  John  Stuart  Mill's 
aphorism  —  '  every  rise  of 
value  supposes  a  fall,  and 
every  fall  a  rise,'  7 ;  Simon  N. 
Patten  on  'objective  values,' 
lb. ;  standard  of  exchange 
value,  12 ;  exchange  value, 
what  determines  its  constancy 
or  variability,  19;  only  one 
real  standard  of  value,  20. 

Walker,  Prof.  F.  A.,  quoted, 
21,  24,  25,  77,78,  82,  15(). 

Wells,  David  xV.,  quoted,  fiO  nqq.  ; 
94,  95,  98,  100,  101,  105-111, 
119,  120. 


208 


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LABOUR 


POPULAR    WELFARE 


W.   H.   MALLOCK, 

Author  of  "Is  Life  Worth  Living?"  "Social 
Equality,"  Etc. 

Second  Edition,  i2mo,  cloth,  90  cents. 


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own,  and  his  statements  of  fact  may  be  relied  upon  as  accurate.  Few  economic 
writers  have  compressed  so  much  into  so  little  space,  and  there  is  the  advantage 
of  clearness  in  brevity  of  statement.  He  writes  earnestly.  ...  It  is  no  mean 
compliment  to  Mr.  Mallock  that  his  book  is  attacked  by  radicals  and  socialists 
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THE 

American  Commonwealth. 

By  the  Right  Hon.  JAMES  BRYCE,  D.C.L., 

Author  of  "The  Holy  Roman  Empire,"  MP.  for  Aberdeen. 

Third  Edition,   Revised   Throughout.      In   Two  Volumes. 
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and  controverted  points  been  reconsidered,  but  in  every  possible  way  the  infor- 
mation given  is  brought  up  to  date.  All  statistics  have  been  carefully  corrected 
by  the  latest  official  records,  and  constitutional  changes  in  the  States  since  1889 
have  been  (so  far  as  possible)  noted. 

Four  entirely  new  chapters  are  added,  in  which  the  author  discusses  The 
Tammany  Ring  in  Ne^v  York  City,  The  Present  and  Future  of  the  N'egro, 
The  South  since  the  IFar,  and  The  Home  of  the  Nation. 

In  the  new  material  Mr.  Bryce  enters  quite  fully  into  recent  politics,  takes 
note  of  the  issues  of  the  last  Presidential  campaign,  the  effects  of  public  opinion 
on  such  questions  as  the  Force  bill,  the  tariff,  the  silver  question,  in  deciding  the 
elections,  the  relations  of  the  political  parties  to  each  of  these  topics,  discusses 
at  some  length  the  growth  of  new  parties,  and  comments  on  the  Hawaiian  trou- 
bles, new  aspects  of  the  agitation  for  female  suffrage,  etc. 

The  changes  in  the  financial  position  of  the  Nation  are  commented  upon,  and 
the  menacing  attitude  of  Labor  in  recent  years  as  shown  in  the  Homestead  Riots 
of  1892  and  the  R.nlroad  Strikes  in  the  present  year.  Attention  is  called  to  the 
dangers,  on  the  one  hand,  of  a  constant  influx  every  year  of  half  a  million  of 
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which  are  able  to  crush  competition,  and  even  influence  legislation. 

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reformers  to  purify  politics,  and  of  the  revolt  of  the  better  portion  of  the  com- 
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overthrow  the  Rule  of  the  Boss. 


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IN  PREPARA  TION. 

INDUSTRIAL    COMBINATIONS    AND 
COALITIONS 

IN  THE 

UNITED     STATES. 

By   ERNST   VON   HALLE. 
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United  States,"  deals  with  an  interesting  and  important  subject.  The  scope  of 
the  work  may  be  indicated  by  enumerating  a  few  of  the  combines,  in  their 
broader  sense,  the  author  briefly  touches  upon,  —  such  as  the  Standard  Oil 
Trust,  the  Cordage  Trust,  Railway  Pooling,  Steamship  Line  Combines,  Pork- 
Packing,  Brewing  and  Distilling  Combines,  School  Book,  Wall  Paper,  and 
Playing  Card  Trusts,  the  Steel  Trade  Combine,  the  Western  Union  Telegraph 
System,  General  Electric  Companies  Trust,  Express  Service  Combines,  besides 
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and  political,  —  but,  on  the  other  hand,  he  points  to  their  manifest  industrial 
advantages.  He  shows  how  legislation  has  opposed  them  and  sought  to  hold 
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pressive measures.  Reference  is  also  made  to  Trusts  and  their  relation  to  the 
Stock  market;  while  the  subject  is  briefly  considered  as  the  outcome  of  a  sys- 
tem of  Protection.  Here,  as  throughout,  the  author  does  not  take  sides,  but  con- 
tents himself,  in  the  main,  with  a  survey  of  facts.  So  neutral  is  the  author,  and 
averse  from  bias,  that  while  he  writes  of  monopolies  as  "  despoilers,  oppressors, 
and  impoverishers,"  he  at  the  same  time  commends  them,  as  among  the  blessings 
of  civilization,  in  giving  encouragement  to  the  invention  and  improvement  of 
machinery  and  to  the  vast  array  of  modern  labor-saving  processes  which  the  age 
—  even  an  age  of  combines  and  trusts —  has  produced. 


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THE  UNITED  STATES. 

An  Outline  of  Political  History,  1492-1871. 

By  GOLDWIN   SMITH,  D.C.L. 
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change,  his  views  of  many  historical  persons  and  events."  —  T/ie  New  York  Sun. 

"  The  opinions  advanced  by  Professor  Smith  are  ...  in  the  main  in  harmony 
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siveness of  view  and  a  ready  grasp  of  leading  tendencies  that  should  make  it  par- 
ticularly useful  to  the  busy  man  who  desires  a  rapid  survey  of  American  political 
history.  By  deliberately  neglecting  details  Professor  Smith  has  been  able  to 
fasten  attention  upon  salient  points  and  to  concentrate  interest  around  the 
careers  of  the  great  leaders  in  our  political  development.  .  .  .  It  is  safe  to  assert 
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"  The  history  of  the  United  States  is  now  told  for  us  in  the  more  attractive  form 
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writing.  The  pages  are  filled  with  sentences  which  stimulate  thought,  with 
happy  phrases,  with  vivid  pictures  of  men  and  of  situations  drawn  with  a  few 
bold  strokes.  ...  A  volume  of  absorbing  interest,  worthy  to  be  ranked  with 
the  best  work  of  a  great  master  of  the  English  language." —  The  Toronto  Globe. 

"  The  author  has,  as  those  who  know  him  do  not  need  to  be  told,  a  style  which 
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work.  The  book  is,  of  course,  a  marvel  of  condensation.  Considered  merely  as 
a  literary  composition  it  would  command  high  praise.  Its  lucidity,  its  graphic 
narration,  and  its  constant  avoidance  of  even  an  approach  to  dulness  are  quite 
as  remarkable  as  its  incisiveness  of  judgment  and  originality  of  view.  ...  Asa 
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Journal. 


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4 


SOCIAL  EVOLUTION. 

By  BENJAMIN    KIDD. 

NEW     EDITION,    REVISED.    WITH     A     NEW     PREFACE. 
i2mo,  cloth,  $1.50. 


"  The  name  of  Mr.  Benjamin  Kidd,  author  of  a  very  striking  work  on  '  Social 
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that  a  new  and  unknown  writer  makes  his  first  appearance  with  a  work  so  novel 
in  conception,  so  fertile  in  suggestion,  and  on  the  whole  so  powerful  in  exposition 
as  '  Social  Evolution  '  appears  to  us  to  be,  ...  a  book  which  no  serious  thinker 
should  neglect,  and  no  reader  can  study  without  recognizing  it  as  the  work  of  a 
singularly  penetrating  and  original  mind." —  The  Times  (London). 

"  It  is  a  study  of  the  whole  development  of  humanity  in  a  new  light,  and  it  is 
sustained  and  strong  and  fresh  throughout.  ...  It  is  a  profound  work  which 
invites  the  attention  of  our  ablest  minds,  and  which  will  reward  those  who  give  it 
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undoubtedly  the  ablest  book  on  social  development  that  has  been  published  for  a 
long  time." —  Boston  Herald. 

"  Those  who  wish  to  follow  the  Bishop  of  Durham's  advice  to  his  clergy  — '  to 
think  over  the  questions  of  socialism,  to  discuss  them  with  one  another  reverently 
and  patiently,  but  not  to  improvise  hasty  judgments  '  —  will  find  a  most  admira- 
ble introduction  in  Mr.  Kidd's  book  on  social  evolution.  It  is  this  because  it  not 
merely  contains  a  comprehensive  view  of  the  very  wide  field  of  human  progress, 
but  is  packed  with  suggestive  thoughts  for  interpreting  it  aright.  .  .  .  We  hope 
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ought  to  govern  right  thinking  on  this,  the  question  of  the  day.  We  heartily 
commend  this  really  valuable  study  to  every  student  of  the  perplexing  problems 
of  socialism." —  The  Churchman. 


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